Funding structure of internet for Large Traffic Generators: Lessons for India from the Korean model

internet for Large Traffic Generators

By Dr. Jaijit Bhattacharya

Hidden in the success of the Netflix series, The Squid Game, was a telecom challenge. In September of 2021, the series triggered SK Telecom, the key telecom provider of Korea, to support a humungous 1.2 terabits per second of content through its networks.

Such a sudden infusion of data for entertainment caught SK Telecom unaware and they had to scramble to upgrade their network.

The question is, who pays for this upgrade? Should all the end-users of SK Telecom pay for this upgrade, including those who never watched The Squid Games or any other entertainment content?

Thus, the question arose of Large Traffic Generators (LTG) forcing already capital-stressed telecom networks to increase investments to support entertainment related data traffic, without contributing to the investment required into the networks to support such high influx of data.

Clearly, this is an unsustainable proposition, especially from an Indian perspective, wherein India has roughly the same costs for rolling out telecom networks as anywhere else in the world, but has one of the lowest tariffs.

We have already seen one of the three key telecom players, Vodafone-Idea, faltering with tremendous debt and the inability to roll out 5G. If we do not have a financially healthy telecom sector, it would be a threat to the growth of India itself.

So how did Korea solve this conundrum? In Korea, Netflix and SK Telecom have decided to collaborate through a formal partnership that will allow users to watch Netflix shows and films on mobile devices and IPTV with easier access and payment options.

SK Telecom will offer various price plans and products, including bundled packages to its customers. Thus, the mechanism provides for sharing of revenues between Netflix and SK Telecom, thereby contributing to the upgrade of the networks on which Netflix transmits its entertainment related data.

This partnership resulted in both firms withdrawing from the legal battle over network usage fees that they had been engaged in for over three years. The dispute started in 2020 over the question of whether Netflix should pay a fee for the use of SK Telecom’s network, as the streaming firm transmits a tremendous amount of data across the network.

SK Telecom contention was that this data was causing massive traffic overloads and therefore significantly increasing the maintenance costs for SK Telecom.

Netflix had countered this contention by stating that it should not be penalised for its success, as well as noting that its content delivery network, Open Connect, could serve to reduce the network traffic by up to 95%. According to Netflix, this option had been wilfully ignored by SK Telecom.

It is important to note that other firms, such as Apple and Facebook, currently pay usage fees to the South Korean internet service providers to compensate for their increased costs due to higher network traffic.

The resolution that has taken place in Korea, has ramifications on the wider debate taking place internationally around whether major content players like Netflix should be forced to help subsidise the telco networks they rely on so heavily to deliver services.

This so-called ‘fair share debate’ continues to be discussed at length in various markets, most notably in Europe, where the European Commission is currently conducting a consultation on the matter.

What is the takeaway for India? India always had the business structure wherein entertainment providers would share revenue with the carriers. This was how cable TV was structured and it helped keep the access costs for cable TV low.

As the Internet replaced cable TV as the mode for delivering entertainment, perhaps it is time to replicate the cable TV model, in order to keep the networks affordable for those who want to use it for new business models or for education or healthcare or other such critical applications.

It would not be of any benefit to the stakeholders and the nation, if the networks on which so much happens in the country, crashes due to the financial burden, or if they radically increase their cost of access.

It is perhaps worthwhile to revisit the issue with an open mind and look deeper into the Korean model.

Perhaps it is time to let the market forces decide the funding structure of the internet for Large Traffic Generators, while protecting startups, small businesses, and the entities fuelling growth in education, news dissemination, healthcare, agriculture and other sectors critical for the nation.

This article first appeared in ET Government,