Controversy Over 'Free Riding' "Netflix Should Also Pay Network Usage Fees"... Will It Be Set in Stone?

[Asia Economy Reporter Kim Heung-soon] The estimated domestic payment amount for global online video service (OTT) Netflix in March was 36.2 billion KRW. This is the result of a sample survey conducted by the app and retail analysis service 'WiseApp·WiseRetail' on payments made by domestic users to Netflix using credit and debit cards. Monthly Netflix payment amounts increased more than tenfold from 3.4 billion KRW in March 2018 to over 36 billion KRW in two years. The number of paid domestic users also surged from 260,000 to 2.72 million during the same period.

Netflix is considered a representative industry beneficiary as OTT usage increased indoors, such as at home, due to the spread of the novel coronavirus infection (COVID-19). As the number of users of platforms that provide services based on the internet, like Netflix, increases, related traffic also surges. SK Broadband, a wired telecommunications operator, claimed that Netflix-related traffic on its internet network increased 2.3 times in March compared to the end of December last year.

◆ "Global CPs Must Stop Free Riding"= SK Broadband argues that Netflix should pay a certain level of usage fees for using the internet network due to service quality degradation caused by the surge in traffic. This is the so-called network usage fee conflict. Overseas content providers (CPs) like Netflix do not pay network usage fees while providing services domestically, citing the absence of relevant laws or regulations. Article 56 of the current Telecommunications Business Act states that "telecommunications business operators must strive to improve the quality of telecommunications services provided," but this applies only to internet service providers (ISPs) and does not impose responsibilities on CPs.

To prevent such conflicts, which have escalated into lawsuits between SK Broadband and Netflix, a bill is awaiting passage in the National Assembly to impose certain quality improvement obligations on overseas CPs as well. The amendment to the Telecommunications Business Act, known as the "Netflix Regulation Act," was submitted to the National Assembly's Legislation and Judiciary Committee on the 19th. The plenary session is scheduled for the 20th. The amendment, which passed the National Assembly's Science, Technology, Information and Broadcasting Committee on the 7th, includes provisions imposing service stability obligations on CPs.

◆ "Not a Legal Mandate but a Matter for Corporate Negotiation"= If such provisions are newly established, it will be significant in providing a legal basis to resolve repeated conflicts between overseas CPs like Google, Facebook, and Netflix and domestic ISPs. When the clause that obligates telecommunications operators to maintain and manage service quality was created, the influence of content providers was minimal, but the situation is different now as the content industry has been reorganized around high-definition online video services. The controversy over "free riding" by overseas CPs, which generate enormous profits using domestic internet networks while being free from responsibility for quality improvement, is inevitable.

Not only Netflix but also domestic CPs such as Naver and Kakao are not pleased with this amendment. They argue that providing quality content to customers is the role of CPs and that this issue should be resolved through corporate negotiations rather than legal regulations. Currently, large domestic companies like Naver and Kakao pay hundreds of billions of KRW to ISPs under the name of network usage fees, but this is a kind of custom reached through negotiations with telecommunications operators rather than a legal obligation. An industry insider said, "If there is a legal basis to pay network usage fees, the negotiation process for fees already being paid could become much more disadvantageous," adding, "Telecommunications operators say that if global companies also pay network usage fees, the burden on domestic CPs will be reduced, but it is difficult to expect separate benefits."

This content was produced with the assistance of AI translation services.