Seismic Shifts In International Data Markets Demand Broadband Internet Policy Update

The global policy movement to improve connectivity and reduce the digital divide has led to reports on international data markets and related regulatory policies. The articles contain sometimes confusing terminology: usage, transit, peering, and interconnection. Each term has a specific meaning and practice. Policy makers could benefit from a summary of policies and proposed instruments, in addition to a thorough review of their country’s networks and practices. Here are some key takeaways from the reports.

The rise of the platform parallel, proprietary and unregulated internet

Germany’s Federal Network Agency commissioned a study on competition in transit and peering markets (141 pages), noting that European regulators have not addressed the issue for at least 5 years. The report indicates that internet traffic in Europe is growing by 25 percent year-on-year, that 80 percent of this traffic is video, social media and gaming, and that only 5-6 players (e.g. platforms Netflix, Amazon Prime, YouTube, etc.) account for more than half of all traffic. These players have more international trunk capacity than the world’s broadband providers and have foregone third-party transit in favor of building their own backbones, submarine cables and data centers. As a result, the transit business has declined. Platforms have largely avoided Internet exchanges where pricing is transparent, instead building tailor-made networks for their proprietary content and increasing the efficiency and profitability of their services.

The development and expansion of massive backbone and delivery infrastructure by these players has permanently changed the overall global Internet architecture, interconnection structure and relationship between platforms and broadband providers, creating a competitive disadvantage for operators. The sustained growth of Internet traffic continues to shape the dynamics of Internet architecture, with the greatest impact coming from the continued exponential growth of video streaming and cloud services. Despite the many advantages of private networking, conflicts can arise when parties exchange data, given the relative market power of non-coordinated companies. Although the architecture of the Internet has changed dramatically over the past decade, the legal and regulatory framework for traffic flows has changed little, and the major platforms in these international data markets are essentially unregulated. The exception is South Korea, with its unique approach to broadband policy and recognized global leadership in broadband services.

Use of the network against interruption

South Korea has had a system for compensating grid usage for nearly a decade. The ethos of the policy reflects the recognition of the shared responsibility of broadband service providers and content/application providers to ensure the quality of data delivery and user experience. In practice, the policy recovers the cost of installing and maintaining fiber from the content provider to the broadband provider’s core router. It provides dedicated bandwidth for the specific content and protects against degradation of the network experience for users who are not accessing the specific content.

Importantly, this practice has nothing to do with stopping traffic for end users. Analysys Mason, the Internet Society, and others appear to be confusing network usage (which describes the relationship between broadband providers and content/application providers) with “sending side network pays” (SPNP) termination mode. In South Korea, SPNP is a historical regime that is valid only between Tier 1 telecom operators if their traffic exchange rate does not exceed 1:1.8.

Although cost recovery is encouraged in South Korea, it is not mandatory, which is why the big US players use the regime. Netflix, for example, rejected claims to recover costs and sued a broadband provider, saying it had no obligation to pay for the broadband upgrades needed to manage Netflix content, which grew 26-fold almost overnight. Netflix lost and the case has been appealed.

Facebook also required South Korean broadband providers to install Facebook servers on their networks for free. Broadband providers refused; After all, servers are expensive and cannot be used for other content, and are therefore inefficient and redundant when hosted for free. To force the fix, Facebook shut down some of those servers and redirected traffic to other countries and operators. This worsened the end-user experience, and Korea’s telecoms regulator fined Facebook for what it deemed intentional harm. Facebook went to court and won, but the abuse was brought to the attention of the Korean Assembly.

Next, the Assembly is considering updating the Telecommunications Business Act to require companies to engage in good faith negotiations on data and price transparency requirements. The bill has no toll mandates.

Data sets required for verification

Policymakers have little data on international data markets. Although useful information about international data traffic is available at an aggregated global level from Cisco and Sandvine, it tells us little about the behavior of participants within the traffic exchange and the microeconomics of individual networks.

Initial efforts are underway to secure more data, notably from Strand Consult, which collects data on streaming video data in rural broadband networks and documents the advantages and disadvantages of different methodological approaches. Importantly, Congress has considered addressing this through the Affordable Internet Financing through Secured Contributions Act, or the FAIR Contributions Act. which would allow the FCC to conduct the necessary study.

In any case, there is no evidence of harm from South Korea’s broadband policy. On the contrary, the country is marked by the highest penetration rate of fiber to homes (86 percent) and 5G (47 percent). The country is considered the first driver of network innovation and a global force in content development for local consumption and export. In addition, Google and Netflix have made record profits in the country. A fair recovery of broadband costs seems to go hand in hand with a thriving ecosystem.


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