[2021 National Audit] Minister Im Hye-sook on Netflix Network Free-Riding Controversy: "Legal Guidelines Needed"

Minister Lim Hye-sook of the Ministry of Science and ICT is responding during the National Assembly inspection of the Ministry of Science and ICT, Korea Post, and others held by the Science, Technology, Information and Broadcasting Committee at the National Assembly in Yeouido, Seoul on the morning of October 1, 2021. 2021.10.1 Photo by National Assembly Press Photographers [Image source=Yonhap News]

[Asia Economy Reporter Seulgina Cho] Minister Lim Hye-sook of the Ministry of Science and ICT expressed the need for government-level guideline legislation regarding overseas content providers (CPs) such as Netflix, which generate massive traffic domestically but do not pay network usage fees.

At the National Assembly Science, Technology, Information and Broadcasting and Communications Committee’s audit on the 1st, Minister Lim stated, "There are no measures for the massive traffic caused by overseas CPs," and added, "While network usage fees are subject to voluntary negotiations between operators, overall guideline legislation is necessary."

On the same day, Kim Sang-hee, Deputy Speaker of the National Assembly, pointed out, "Some operators are causing a surge in network traffic, and among the top 10 operators, six are overseas companies," adding, "They account for more than 80% of the total." She explained that as the online video service (OTT) market expands, certain overseas CPs are placing a heavy burden on domestic networks, leading to consumer harm.

Deputy Speaker Kim emphasized, "Although network stability obligations were imposed on five operators accounting for more than 1% of traffic and over one million users, there has been no effect at all," and stressed, "We need to induce overseas CPs to invest."

A representative case of conflict arising from generating revenue based on domestic infrastructure without paying network usage fees is between Netflix and SK Broadband. After losing a lawsuit filed against SK Broadband seeking a declaration of non-existence of debt, Netflix appealed the decision. Consequently, on the 30th of last month, SK Broadband filed a counterclaim against Netflix for network usage fees based on the principle of unjust enrichment under civil law.

The traffic generated by Netflix, which dominates the domestic OTT market, on SK Broadband’s network has been increasing exponentially every year. From about 50Gbps in May 2018, it surged approximately 24 times to around 1200Gbps as of September this year. Correspondingly, SK Broadband’s losses for managing and maintaining this increased traffic inevitably rise.

The controversy over free-riding on networks by global CPs including Netflix is not new. However, it has been confirmed that Netflix pays network usage fees to overseas ISPs such as Comcast, Verizon, and AT&T.

Deputy Speaker Kim urged, "Overseas operators do not pay network usage fees," and called for "improvements to the system to prevent free-riding, with legislative preparations underway, and requested active government participation."