Seismic Shifts In International Data Markets Demand Broadband Internet Policy Update

A global policy movement to improve connectivity and close the digital divide has generated reports on international markets for data and related regulatory policies. The documents sometimes introduce confusing terminology: usage, transit, peering, and interconnection. Each word has a specific meaning and practice. Policymakers can benefit from a summary of policy and proposed instruments, as well as a detailed review of their own country’s networks and practices. Here are some key findings from the reports.

Emergence of Parallel, Proprietary, and Decentralized Internet by Platforms

Germany’s Federal Network Agency commissioned a study on competition in transit and peering markets (141 pages), noting that the issue has not been examined by European regulators for at least 5 years. The report shows that Internet traffic in Europe is growing by 25 percent every year, 80 percent of this traffic is video, social media and games, and that only 5-6 players (such as platforms Netflix, Amazon Prime, YouTube etc.). Accounts for more than half of all traffic. These players have more international backbone capacity than the world’s broadband providers and have jettisoned third-party transit instead of building their own backbones, undersea cables, and data centers—resulting in a decline in the transit business. Platforms often avoid Internet exchanges where prices are transparent, instead building bespoke networks for their proprietary content and maximizing the efficiency and profitability of their services.

The extensive development and expansion of backbone and delivery infrastructure by these players has permanently changed the overall global architecture of the Internet, the structure of interconnections, and the relationship between platforms and broadband providers, creating competitive disadvantages for operators. The continued growth of Internet traffic continues to shape the dynamics of the Internet’s architecture, with the continued uneven growth of video streaming and cloud services having the greatest impact. Although private provision of networks has many advantages, given the relative market power between mismatched entities, conflicts may arise when parties exchange data. Over the past decade or so the Internet structure has changed dramatically, the legal and regulatory framework for traffic flow has changed little, and the largest 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.

Network utilization vs. termination

South Korea has had a framework for compensating network usage for nearly a decade. The Code of Conduct of the Policy reflects the recognition of shared responsibility between broadband providers and content/application providers to ensure quality of data delivery and user experience. In practice, the policy ensures cost recovery of installation and maintenance of fiber to the broadband provider’s core router from the content provider. It provides dedicated bandwidth for a given content and protects against degradation of the network experience for users not accessing that particular content.

Importantly, this practice has nothing to do with the end of traffic to end users. It appears that Analysis Mason, the Internet Society, and others confuse network usage (which describes the relationship between broadband providers and content/application providers) with termination arrangements for “sending party network payments” (SPNP). In South Korea, SPNP is a historical arrangement that only applies between Tier 1 telecommunications operators if their traffic exchange rate does not exceed 1:1.8.

While cost recovery is encouraged in South Korea, it is not mandatory, and so the big US players play the rule. For example, Netflix rejected claims for cost recovery and brought a broadband provider to court, saying it had no obligation to pay for the broadband network upgrade needed to manage Netflix content, which increased nearly 26-fold. Netflix lost, and the case is on appeal.

Facebook has also asked South Korean broadband providers to install Facebook servers on their networks for free. Broadband providers ignored; After all, servers have a cost and cannot be reused for other content, and are therefore inefficient and redundant if kept free. To reinforce the issue, Facebook shut down some of these servers and rerouted traffic to other countries and operators. This degraded the end-user experience, and Korea’s telecom regulator fined Facebook for what it considered willful harm. Facebook took the case to court and won, but the abuse drew the attention of the Korean assembly.

Going forward, the Assembly considers updating the Telecommunications Business Act to determine that companies are engaging in good faith negotiations with requirements for data and pricing transparency. The bill does not mandate any fees.

Datasets required for validation

Policymakers have little data about international data markets. While useful information on international data traffic from Cisco and Sandvin is available on an aggregate, global scale, it tells us little about the behavior of actors within the traffic exchange and the microeconomics of individual networks.

Initial efforts are underway to provide more data, notably from Strand Consult which collects data on streaming video data on rural broadband networks and documents the pros and cons of different methodological approaches. Importantly, Congress has considered addressing this by funding Affordable Internet with the Reliable Contributions Act, or FAIR Contributions Act. which enables the FCC to conduct the necessary studies.

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


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