One Month After Netflix Act Enforcement... Will the 'Network Usage Fee' Lawsuit Landscape Change?

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[Asia Economy Reporter Joesulgina] Kim Nami, in her 30s, who has spent more time at home due to the prolonged COVID-19 pandemic, complains of frustration every time she watches Netflix on her smart TV. She often experiences buffering and interruptions at least 2 to 3 times per episode of popular dramas. This complaint is one of Netflix's chronic issues. It is frequently observed among the majority of users who use smart TVs, not limited to any specific telecom provider. Kim said, "Even when it freezes, there is no notice," and added, "I am subscribed because I want to watch certain content, but I sigh wondering if a domestic company would have been this brazen."

As the so-called 'Netflix Free Riding Prevention Act,' which imposes service stability obligations on global content providers (CPs), has passed one month since its enforcement, attention is also focused on the 'network usage fee legal battle' between Netflix and SK Broadband. Since the obligation to maintain network quality has been legally clarified, domestic internet service providers (ISPs) like SK Broadband now have a path to demand fair compensation from CPs that consume large-scale traffic.

◆Netflix vs SK Broadband

According to industry sources on the 12th, the second hearing of the lawsuit filed by Netflix against SK Broadband to confirm non-existence of debt will be held on the 15th at the Seoul Central District Court.

In the first hearing last October, the two sides clashed over the concepts of 'network usage fees' and 'network neutrality.' Netflix argued that the obligation to transmit video content data lies with the ISP, i.e., SK Broadband, based on the concept of 'internet fundamental principles.' On the other hand, SK Broadband criticized Netflix for 'free riding,' pointing out that Netflix gains economic benefits by using the platform operator's network without paying fees. SK Broadband also rebutted Netflix's claim that 'forcing transmission fees violates network neutrality,' stating, "Network neutrality is a principle prohibiting discrimination based on content type and category, unrelated to network usage fees."

The second hearing is expected to involve detailed arguments based on a precise definition of network usage fees. In particular, attention is on whether the so-called 'Netflix Law' (Amendment to the Enforcement Decree of the Telecommunications Business Act), which came into effect on December 10 last year, could change the course of the lawsuit. An industry insider explained, "Although direct content related to network usage fees is not specified, paying network usage fees itself contributes to maintaining network quality."

Depending on the court's future ruling, if a precedent is set that global CPs must pay network usage fees, the negotiation dynamics with domestic ISPs will change significantly. Recently, the U.S. Federal Court of Appeals in Washington DC also ruled that CPs like Netflix must properly pay network usage fees to ISPs.

◆Why Did the Network Free Riding Controversy Arise?

Currently, global CPs such as Netflix and YouTube account for more than 70% of domestic traffic. Although they earn huge profits based on domestic infrastructure, they do not pay network usage fees. This contrasts with domestic CPs like Naver and Kakao, which pay hundreds of billions of won annually in network usage fees and contribute to service stability.

The indifferent attitude toward frequent outages and connection failures has also come under scrutiny. Netflix experienced outages totaling about 4 hours and 30 minutes twice within just half a month in May and June last year but did not issue any apology notices or compensation plans.

In fact, Netflix pays network usage fees in other countries overseas. As traffic congestion worsened, Netflix began signing network usage fee contracts with major U.S. ISPs such as Comcast, Verizon, and AT&T around 2014. It is also known to pay network usage fees to Orange in France.

However, domestically, Netflix is ignoring even the mediation of the Korea Communications Commission regarding network usage fees and is engaged in a legal battle with SK Broadband. This means that a telecommunications operator with domestic sales in the trillions of won has 'passed over' the regulatory authority's mediation.

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