of the business grants dept
There’s a Korean proverb that says, “There’s always a way out, look for it.” However, South Korea’s recent overhaul of its Telecommunications Business Act (TBA) may be the one thing South Korea can’t get out of unless its plans are in place on handing monopoly power back to telecom providers.
Like Europe, South Korea faces similar challenges – an aging population and the need to compete in high-value sectors and create a digital ecosystem that is resilient and fosters economic and social growth. It is therefore quite ironic that both countries are contemplating policies that could jeopardize and undermine much of the internet and its digital future.
The Sending Party Network Pays (SPNP) proposal, which is currently at the heart of each country’s legislative agenda, is based on a simple idea: content platforms that generate and send the most internet traffic over the internet should have a pay a certain fee to telecommunications providers in order for these providers to deliver this traffic to users. This model can certainly make sense in the telephony environment, where traditionally telephone operators have had a termination monopoly for their customers; but when it comes to the Internet, this proposal will prove counterproductive and dangerous, creating bottlenecks for investments and hurting users’ Internet experience.
We often hear that the Internet is a network of networks. This is not a philosophical statement; Rather, it means that networks, through voluntary agreements, independently decide who to work with while identifying ways to optimize connectivity to meet user needs. This ensures the resilience and at the same time the robustness of the system. As a decentralized network, the Internet has no central authority or gatekeeper to determine which networks can and cannot join, meaning that each network is able to participate autonomously in deciding which other network to join and at what cost , and to become part of the global Internet. The only requirement is that it “speaks” the IP protocol language.
2013 still up to date report the OECD confirms the success of the Internet model compared to classic telephony. “While national regulators have tightly regulated circuit-switched (TDM) traffic exchanges to achieve policy goals such as universal connectivity and competition, the Internet market has achieved the same goals with very little regulatory intervention, while performing much better than the legacy markets in terms of on prices, efficiency and innovation”.
This fundamental design decision and the resulting benefits are now being ignored, and the results are unpredictable at best and potentially irreversible in the long run.
In 2016, South Korea became the first country to enforce a “sending party network pays” model, which required ISPs to charge for the volume of traffic they exchanged between them. Although it’s only enforced between ISPs so far, it’s already had a detrimental impact on South Koreans competitive market. Given the high fees, a number of South Korean and overseas content providers were left with only two options: exit the market or degrade their services. Meanwhile, smaller Korean providers and a large number of startups have to make themselves invincible barriers to entry on the market.
South Korean users have long enjoyed fast and reliable internet connection, and South Korea has been an example that other countries look to when solving connectivity problems. No longer. According to a recent reportin South Korea, “regulation appears to have deterred peering and investment […]leading to higher costs for ISPs, lower initial quality for users and the need for more regulation to correct unintended consequences.” Differences in internet access charges, especially compared to Europe shot up 8x to 10x compared to 5x to 6x in the US, leading many content providers to intentionally downgrade their services.
Europe could soon face a similar reality should it decide to push its own ‘sender-party-network-pays’ model. Since March, when EU Commissioner for the Internal Market, Thierry Breton, announced The European Commission’s intention to move forward with such a plan has raised widespread concerns among a variety of stakeholders across Europe. Civil society has sentenced of the proposal, particularly in relation to the barriers to entry it introduces and its potential impact on “freedom of expression, access to knowledge, freedom to conduct business and innovation in the EU”. Similarly, the European consumer organization specified that “particularly for consumers, the risks or potential downsides of setting up measures such as an SPNP scheme would range from potential distortion of competition in the telecoms market, with negative impacts on product, price and service diversity, to potential impact on net neutrality, what could undermine the open and free access to the Internet as consumers know it today.” So did the group of Mobile Virtual Network Operators (MVNO) in Europe called for a “careful impact assessment”, while the European Association for Commercial Television and Video on Demand (ACT) pushed The European “institutions should carefully consider the broader implications before taking any action that would directly or indirectly affect the overall stability and sustainability of the European audiovisual industry (and consumer rights).
What, then, could be driving this sea change in both Europe and South Korea, especially given that the proposal was rejected by all but a handful of telecom companies?
Let’s look at this in terms of political goals. Telecom Provider to quarrel that a “fair contribution” system is needed for infrastructure and that both countries need to achieve their respective digital agenda goals. However, if this is really the case, then the starting point of the conversation is wrong. Throwing money at the biggest telcos will encourage monopolistic behavior and unpredictability rather than infrastructure development. Considering that such deals are confidential in any case, it will also be difficult for anyone to know the compromises that need to be agreed every time. A payout will simply extend the telcos’ monopoly of termination from phone to content; It won’t address any real infrastructure concerns.
To that end, a real infrastructure strategy might be needed. In its preliminary assessment of the SPNP proposal, the Body of European Regulators for Electronic Communications (BEREC) said that although “the debate about network investments, traffic volumes and cost drivers needs to be carefully analyzed”, at the same time “the Internet has demonstrated its ability to cope with increasing traffic volumes, changing demand patterns, technologies, business models and the (relative) market power between market participants”. The focus should therefore be on services that facilitate the user experience and improve the resilience and stability of the Internet, including Internet Exchange Points (IXPs), Content Delivery Networks (CDNs), caches and the like.
Bad ideas tend to be solutions to problems that nobody really has. Indeed, there is no discernible problem in the interconnection market. The norms and rules established years ago still apply and ensure connectivity. Europe must learn from South Korea’s experience and avoid repeating mistakes that will only harm its citizens and its digital future. As other countries, including the UK and India, begin to flirt with similar ideas, the discussion about what kind of digital future we want is becoming more pressing.
Konstantinos Komaitis, Internet Policy Expert and Author & KS Park, Professor, Korea University, Director, Open Net
Filed under: competition, eu, greed, korea, sender pays, south korea, spnp, telco, thierry breton