Seismic Shifts In International Data Markets Demand Broadband Internet Policy Update

The global policy movement to improve connectivity and close the digital divide for data and related regulatory policies has resulted in reports on international markets. Papers sometimes use confusing terminology: use, transfer, peering, and binding. Each word has a specific meaning and practice. Policy makers can benefit from a summary of recommended policies and tools – in addition to a thorough review of their country’s networks and practices. Here are some of the key findings of the report.

The Rise of a Parallel, Proprietary, and Unregulated Internet by Platforms

The German Federal Network Agency conducted a study on competition in the transit and peering markets (141 pages) and stated that this issue has not been investigated by European authorities for at least 5 years. The report shows that in Europe internet traffic is increasing by 25% year on year, 80% of this traffic is video, social media and games, and only 5-6 players (e.g. platforms Netflix, Amazon Prime, YouTube etc.) account for for more than half of all traffic. These players have more international backbone capacity than the world’s broadband providers and have cut out third-party transmissions instead of building their own backbones, submarine cables, and data centers — so the transit business has shrunk. Platforms are largely moving away from internet transactions that have transparent prices, instead building proprietary networks for their proprietary content and increasing the efficiency and profitability of their services.

The development and expansion of back-end and delivery infrastructures by these players has continuously changed the global internet architecture, connection structures, and the relationship between platforms and broadband providers, creating competitive disadvantages for operators. The constant growth of internet traffic continues to shape the dynamics of internet architecture, with the continued disproportionate growth of video streaming and cloud services having the greatest impact. Despite the many advantages for the private provision of the network, conflicts can arise when the parties exchange data, because of the relative market power between non-aligned entities. While the internet architecture has changed a lot in the last decade, the legal and regulatory framework for traffic flow has changed little, and the biggest platforms are essentially unregulated in these international data markets. The exception is South Korea with its unique approach to broadband policy and recognized global leadership in broadband.

Using the network against termination

South Korea has had a framework for net usage compensation for about a decade. The policy ethos recognizes the shared responsibility between broadband providers and content/application providers to ensure the quality of data delivery and user experience. In practice, the policy ensures cost recovery of installing and maintaining fiber from the content provider to the broadband provider’s core router. This provides dedicated bandwidth for specific content and protects against degrading the network experience for users who cannot access that specific content.

Importantly, these practices have nothing to do with end-user traffic termination. It appears that Analysys Mason, the Internet Society, and others are confusing network usage (which refers to the relationship between a broadband provider and content/application providers) with the “sending party network fees” (SPNP) termination regime. In South Korea, SPNP is a historical regime that only applies between Tier 1 telecom operators if their traffic exchange ratio does not exceed 1:1.8.

While cost-reimbursement is encouraged in South Korea, it is not mandatory, and so the big players in the US have played along with the regime. For example, Netflix rejected claims for cost recovery and took a broadband provider to court, saying it didn’t have to pay for the broadband network upgrades needed to handle Netflix’s content that has grown 26-fold overnight. Netflix lost, and the case is on appeal.

Facebook has similarly demanded that South Korean broadband providers install Facebook servers within their networks for free. Broadband providers countered; After all, servers are expensive and cannot be exchanged for other content, and are therefore inefficient and redundant if implemented for free. To resolve the issue, Facebook shut down some of these servers and rerouted traffic to other countries and operators. This worsened the end-user experience, and Korea’s telecom regulator fined Facebook for what it considered intentional harm. Facebook took the matter to court and won, but the abuse drew the attention of the Korean Parliament.

Moving forward, the Legislature is considering updating the Telecommunications Business Act to ensure that companies negotiate in good faith with requirements for data and price transparency. There are no fee obligations in the bill.

Data required for verification

Policymakers have little information about international data markets. While helpful information on international data traffic at the aggregate, global level is available from Cisco and Sandvine, it tells us little about the behavior of actors within a traffic exchange and the microeconomics of individual networks.

Initial efforts are being made to provide more data, particularly from Strand Consult which is collecting data on video data transmission over rural broadband networks and documenting the pros and cons of different methodological approaches. Importantly, Congress has addressed this through the Fair Contributions Funded Affordable Internet Act or the FAIR Contributions Act. which would empower the FCC to conduct the necessary investigation.

In any case, there is no data that shows damage from South Korea’s expansionist policy. Conversely, the country is celebrated for the highest rates of home fiber penetration (86 percent) and 5G (47 percent adoption). The country is considered a first mover in network innovation and a global powerhouse in content development for local consumption and export. Meanwhile, Google and Netflix enjoyed a year of record profits in the country. It seems that broadband’s fair cost recovery goes hand in hand with a thriving ecosystem.


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