Although the 'Netflix Act' Passed... It Depends on the 'Gonggamang Dispute' Lawsuit

[Asia Economy Reporter Kim Heung-soon] As the amendment to the Telecommunications Business Act, commonly known as the 'Netflix Law,' has passed the National Assembly, the key issue now is how domestic and foreign CPs (Content Providers) offering internet-based services will improve quality problems caused by traffic overload. Internet Service Providers (ISPs) argue for cost-sharing under the name of network usage fees, overseas CPs like Netflix prefer to maintain stability using their own technology instead of paying fees, and domestic CPs such as Naver and Kakao worry that the burden on domestic operators will increase compared to foreign operators. Each party has different claims. The lawsuit outcome between Netflix and SK Broadband, which reflects the temperature gap between CPs and ISPs, could become a standard for creating specific guidelines.

◆ Long Road Ahead Even After Passing the National Assembly= According to the government and related industries on the 24th, the amendment to the Telecommunications Business Act, which passed the plenary session of the National Assembly on the 20th, includes a clause stating that value-added telecommunications service providers who meet criteria such as the number of users and traffic, as determined by Presidential Decree (enforcement ordinance), "must secure means to ensure service stability." The existing Article 56 of the Telecommunications Business Act states that "telecommunications business operators must strive to improve the quality of telecommunications services they provide," but this applies only to ISPs and does not impose responsibility on CPs. According to the amendment, CPs will also have to cooperate in maintaining the stability of internet service quality going forward. The specific methods will need to be detailed through the enforcement ordinance.

After the amendment passed, the statements released by each stakeholder reflected differing views, indicating anticipated difficulties until the enforcement ordinance is prepared. SK Broadband evaluated, "The passage of this amendment is significant in that it establishes a legal basis for the obligation to protect users even for global CPs serving domestic users." Netflix was more reserved, stating, "We respect the judgment of the National Assembly and will provide high-quality services to consumers worldwide, including Korea."

The Korea Internet Corporations Association, which includes Naver and Kakao, along with the Korea Venture Business Association and Korea Startup Forum, issued a joint statement saying, "The ambiguous term 'securing service stability' could sharply affect the related market and the principle of net neutrality," and added, "We will verify whether the enforcement ordinance and other regulations are prepared according to the government's statements during the legislative process, express our opinions, and continue to carefully analyze the impact of the amendment on the internet industry and users to ensure that neither companies nor users suffer damage."

◆ Focus on Network Usage Fee Litigation= Regardless of the amendment's passage, Netflix is expected to proceed with the civil lawsuit it filed against SK Broadband as planned. The formal name of the lawsuit is a "claim for confirmation of non-existence of debt." Netflix's position is that the CP's role is to provide quality content to consumers, while responsibility for network management lies with ISPs like SK Broadband, and therefore, there is no debt to pay network usage fees. Netflix has stated that it will respect not only the National Assembly's decision but also the court's judgment following the amendment's passage.

Netflix has argued that instead of paying network usage fees to ISPs in the respective countries, it can reduce traffic overload issues by storing content close to its service users and streaming it through its free 'Open Connect' service. SK Broadband counters that the fundamental solution is for CPs to share the costs incurred in managing network quality. Ultimately, the court's ruling on the 'free-riding on networks' debate will clarify the issue, narrow the gap between the two sides, and establish certain standards on how CPs and ISPs will share responsibility for ensuring service stability in the future.

SK Broadband also plans to clarify the matter through litigation. A representative from SK Broadband said, "We have received the complaint filed by Netflix, are reviewing its contents, and preparing to submit a response." According to civil litigation procedures, a response must be submitted within one month after receiving the complaint. Netflix filed the lawsuit last month.