Netflix Sends Response to Korean Government... Korea Communications Commission on Alert for 'Budget Proposal'

Partial response to the 'Rebuttal Statement' requested in February received
Remaining parts to be sent by the end of this month
Meetings with the Korea Communications Commission, Netflix, and SK Broadband planned for April-May
Effectively a proxy battle between telecom companies and global CPs expected

[Asia Economy Reporter Koo Chae-eun] It has been confirmed that Netflix has sent the first response to the Korea Communications Commission's (KCC) inquiry regarding the mediation on network usage fees. Netflix has notified that the second response will be sent by the end of this month.

The ball is now in the KCC's court. This mediation, which is essentially a proxy battle between domestic telecom companies and global content providers (CPs), is attracting attention as it may become the first resolved case of a network usage fee dispute. Depending on the outcome, KT or LG Uplus may also apply for mediation.

Netflix Sends 'Counter Inquiry' Response Within a Month

According to industry sources on the 25th, Netflix recently sent a partial response to the KCC's inquiry requesting a rebuttal to SK Broadband's claims. This came about a month after the KCC requested materials defending the opposing party's claims in February. Netflix sent part of the response around the 23rd and informed the KCC that the remainder would be sent by the end of this month (30th).

Accordingly, the KCC is expected to verify the facts based on the positions submitted by both parties, conduct final arguments, and refine the details of the mediation proposal. A KCC official stated, "We will prepare the mediation proposal by synthesizing both sides' arguments from a neutral standpoint," adding, "If necessary, we plan to meet with Netflix and SK Broadband to hear their opinions on deriving the mediation proposal."

Summarizing industry opinions, Netflix maintains that, based on its U.S. headquarters' basic stance, it is legitimately using the network and is not refusing negotiations. On the other hand, SK Broadband argues that Netflix's domestic traffic has rapidly increased to an unmanageable level, causing transmission costs to surge, yet Netflix is not responding to negotiations on network usage fees.

The Ball Moves to KCC... The 'Content' of the Mediation Proposal is Key

Accordingly, attention is focused on the direction of the KCC's mediation scheduled for May. If the KCC wants to extend the mediation review period (within 90 days from the application date), it must refer the matter back to the plenary session, so it is likely that the mediation proposal will be prepared in May. In January, the KCC announced the principle of sincere negotiation through the 'Network Usage Contract Guidelines.' The mediation proposal for the network usage fee dispute between SK Broadband and Netflix is expected to include specific standards such as principles, methods, and procedures for establishing network usage fee negotiations based on concrete dispute cases.

Meanwhile, last November, SK Broadband requested mediation from the KCC to arbitrate the network usage fee negotiations with Netflix. Since Netflix entered the domestic market in 2016, it has been called a 'traffic hippo' but has paid '0 won' in network usage fees to telecom companies. Especially with the surge in Netflix viewership due to the spread of COVID-19, there are growing calls for telecom network expansion funded by network usage fee payments. Netflix claims it provides cache servers free of charge instead of paying network usage fees, but SK Broadband argues this does not reduce domestic network expansion costs and is not a fundamental solution.