{"id":2199481,"date":"2022-11-15T09:13:48","date_gmt":"2022-11-15T09:13:48","guid":{"rendered":"https:\/\/www.nknews.org\/koreapro\/?p=2199481"},"modified":"2023-04-05T16:10:59","modified_gmt":"2023-04-05T07:10:59","slug":"the-network-fee-fiasco-that-could-cripple-south-koreas-internet-forever","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/11\/the-network-fee-fiasco-that-could-cripple-south-koreas-internet-forever\/","title":{"rendered":"The network fee fiasco that could cripple South Korea\u2019s internet"},"content":{"rendered":"

Amazon\u2019s livestream service Twitch recently <\/span>announced<\/span><\/a> that it will suspend video-on-demand (VOD) in South Korea and no longer allow users to create new VOD content. And while this decision will only directly affect the platform\u2019s niche audience, it highlights a growing battle over <\/span>network usage fees<\/span><\/a> that could reshape the country\u2019s internet landscape.<\/span><\/p>\n

Twitch\u2019s announcement comes on the heels of the company\u2019s <\/span>earlier decision<\/span><\/a> to cap all videos at a max resolution of 720p, which it attributed to costs stemming from ROK regulations and such fees. Both decisions will negatively impact the profitability of a company with <\/span>140 million monthly active users<\/span><\/a> worldwide and a large presence in <\/span>South Korea<\/span><\/a>.<\/span><\/p>\n

The network fee issue stems from the 2016 revision of the <\/span>Interconnection Standards for Telecommunication Facilities<\/span><\/a> law, which required the country\u2019s three major internet service providers (ISPs) \u2014 SK Broadband, KT and LG U+ \u2014 to <\/span>pay additional fees<\/span><\/a> to send data to one another. This sort of fee structure does not exist in any other advanced economy.<\/span><\/p>\n

During the pandemic, when the number of people watching videos through streaming sites such as Netflix and YouTube <\/span>increased significantly<\/span><\/a>, carriers complained of excessive traffic burden.<\/span><\/p>\n

According to South Korea’s technology ministry, Google, Netflix and Facebook accounted for 27.1%, 7.2% and 3.5% of all <\/span>data used in South Korea in 2021<\/span><\/a>, respectively \u2014 accounting for more than a third of the country\u2019s total. And as a result of YouTube and Netflix\u2019s growing popularity in recent years, South Korean ISPs have had to foot the bill for sending and receiving the enormous amounts of data they require.\u00a0<\/span><\/p>\n

But while local content providers such as <\/span>Naver and Kakao<\/span><\/a> have had to abide by the 2016 law change and pay network usage fees to help cover these costs, this has not been the case for overseas content providers.\u00a0<\/span><\/p>\n

The result was that South Korean ISPs, stoking nationalist sentiment, claimed that overseas content providers were \u201c<\/span>free-riding<\/span><\/a>\u201d while reaping <\/span>massive profits<\/span><\/a> and demanded that the likes of YouTube, Netflix and Twitch pay network usage fees as well. A proposed law currently under consideration would go further and enshrine the principle that content providers must pay usage fees.<\/span><\/p>\n

But overseas content providers have balked at paying network usage fees because they do not do so in any other country. And given their popularity, their fees will dwarf those paid by local content providers.<\/span><\/p>\n

Netflix even filed a complaint against SK Broadband over the issue, but the Seoul Central District Court <\/span>ruled in favor of SK Broadband<\/span><\/a>, stating that the two parties must negotiate an appropriate fee. Netflix has still <\/span>not paid<\/span><\/a>.<\/span><\/p>\n

The popularity of South Korean content worldwide \u2014 from BTS to Squid Game to Baby Shark \u2014 is a direct result of being able to deliver such content over the internet for a minimal cost. But such measures risk suffocating the very thing that has helped boost South Korea\u2019s soft power.<\/span><\/p>\n

\"\"

The Netflix and SK Broadband logos | Image: Netflix via Wikimedia Commons<\/a>, SK Broadband via Wikimedia Commons<\/a>, edited by Korea Pro<\/em><\/p><\/div>\n

WRITING ON THE WALL<\/b><\/p>\n

Twitch\u2019s decision to suspend VOD services and kneecap video quality is an effort to avoid paying those rising network usage fees, which <\/span>amounted<\/span><\/a> to $37.8 million (50 billion won) in 2021 and may reach $68 million (90 billion won) this year.\u00a0<\/span><\/p>\n

But the company\u2019s decision might just be the beginning. Twitch is a smaller over-the-top (OTT) media service that caters to a small market. Most South Korean internet users won\u2019t feel the effects of the company\u2019s decision, but the same cannot be said if larger OTT service providers follow its lead.<\/span><\/p>\n

South Korea\u2019s National Assembly is currently <\/span>debating<\/span><\/a> the Telecommunication Business Act Amendment Bill, popularly known as the Network Usage Fee Act. The bill is likely to pass thanks to the support of the Democratic Party, which holds 169 out of 300 seats, and once passed, the law would be the first of its kind worldwide.<\/span><\/p>\n

YouTube has publicly opposed the network fee act, and Netflix has already made its position on usage fees clear by taking SK Broadband to court.<\/span><\/p>\n

One possible consequence of the bill would be <\/span>cutbacks in investment<\/span><\/a>. The vice president of Google\u2019s YouTube Asia Pacific, for instance, has <\/span>written<\/span><\/a> that the proposed law could \u201cundermine YouTube\u2019s opportunity to make continuous investments for Korean creators to be successful.\u201d<\/span><\/p>\n

Such a decision would have far wider repercussions than Twitch\u2019s recent moves. YouTube is <\/span>the most popular<\/span><\/a> video streaming service in South Korea by a large margin, with more than half of all smartphone users watching content on the site.\u00a0<\/span><\/p>\n

In addition, YouTube\u2019s creator community reportedly generated <\/span>$1.3 billion<\/span><\/a> (1.6 trillion won) for the South Korean economy and created over 86,000 jobs in 2020. The pandemic has only made YouTube even more popular and profitable.<\/span><\/p>\n

Netflix could opt for similar measures if the bill becomes law. So far, Netflix has announced plans to invest <\/span>$100 million<\/span><\/a> in South Korea over the next six years. But having to pay network usage fees could lead the company to conclude that the benefits of investing in South Korean content are not worth the costs.<\/span><\/p>\n

Insisting that content providers pay usage fees is thus likely to affect a large number of content creators and end users in the country.<\/span><\/p>\n

\"\"

South Korean National Assembly and the Google logo | Image: National Assembly via Wikiwand<\/a> (CC BY-SA 3.0<\/a>), Google via Wikimedia Commons<\/a>, edited by Korea Pro<\/p><\/div>\n

CHANGING LANDSCAPE<\/b><\/p>\n

The proposed law will most likely target large companies that use the most bandwidth \u2014 in particular <\/span>Google, Netflix and Meta<\/span><\/a> \u2014 while mostly ignoring smaller companies. But even with this limited scope, the law would still have a negative impact on South Korea\u2019s entire internet landscape.<\/span><\/p>\n

Network use fees penalize content providers for hosting popular content and distort market incentives. As a result, larger content providers could reduce services like Twitch and pull back investments.\u00a0<\/span><\/p>\n

The law will also give ISPs leverage over content providers and force content providers to pay higher fees to ensure continued market access, leading to higher costs for end users. If passed, the law will effectively kill net neutrality \u2014 the principle that internet service providers should not favor or discriminate against any website \u2014 in South Korea.<\/span><\/p>\n

To prevent a widespread backlash, end users likely will not see a significant increase in their monthly internet bills as the increased costs will be divided among all South Korean internet users. These users will also acclimate to any corporate withdrawal from the country and find alternative local content providers.<\/span><\/p>\n

Taken together, these cascading factors will impoverish the content economy at best and entirely cripple it at worst. In either case, South Korean soft power will be left weaker.<\/span><\/p>\n

More immediately, the proposed bill will disproportionately affect U.S. companies, contravening South Korea\u2019s international trade commitments under the World Trade Organization (WTO) and the Korea-United States Free Trade Agreement (KORUS). The resulting trade disputes will lead to increased friction between Seoul and Washington when South Korea needs allies and partners the most.<\/span><\/p>\n

An unprecedented decision to require payment network usage fees could thus have global repercussions. The international community would be wise to keep watch.<\/span><\/p>\n

Edited by Bryan Betts<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

Amazon\u2019s livestream service Twitch recently announced that it will suspend video-on-demand (VOD) in South Korea and no longer allow users to create new VOD content. And while this decision will only directly affect the platform\u2019s niche audience, it highlights a growing battle over network usage fees that could reshape the country\u2019s internet landscape. 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