Seismic Shifts in International Data Markets Call for Broadband Policy Updates


To improve connectivity and bridge the digital divide, a global policy movement has created reports on international markets for information and related regulatory policies. The documentation introduces sometimes confusing terminology: use, transit, review, and interaction. Each term has its own meaning and practice. Policymakers can benefit from a summary of policies and proposed tools, as well as a comprehensive review of their country’s networks and practices. Here are some key findings from the reports.

Rise of Parallel, Proprietary and Unregulated Internet by Platforms

Germany’s Federal Network Agency has conducted an investigation into competition in the transit and peering markets (141 pages), noting that the issue has not been investigated by European regulators for at least 5 years. The report notes that internet traffic in Europe is growing by 25 percent year-on-year, 80 percent of this traffic is video, social media and games, and only 5-6 players (e.g. Netflix, Amazon Prime, YouTube platforms, etc.) account for more than half of all traffic. does. These players have more international backbone capacity than any broadband provider in the world, and instead of building their own backbones, submarine cables, and data centers, they’ve stopped third-party transit – As a result, the transit business has declined. Platforms largely eschew price-transparent internet exchanges, instead building bespoke networks for their private content and increasing the efficiency and profitability of their services.

The massive development and expansion of backbone and delivery infrastructure by these players has permanently changed the overall global architecture of the internet, the interconnection structure and the relationship between platforms and broadband providers, creating competitive disadvantages for operators. The steady growth of Internet traffic continues to shape the dynamics of Internet architecture, with the disproportionate growth of video streaming and cloud services having the greatest impact. Despite the many advantages of private provision of networks, given the relative market power between incompatible entities, conflicts may arise when parties exchange information. Although the internet architecture has changed dramatically over the past decade, the legal and regulatory framework for traffic flows 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 Use and Termination

South Korea has had a grid usage compensation framework for almost a decade. The policy ethos reflects the recognition of the shared responsibility between broadband 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. This provides dedicated bandwidth for a given content and protects against degradation of the network experience for users not accessing that content.

Importantly, this practice has nothing to do with stopping traffic to end users. It appears that Analysys Mason, the Internet Society and others are confusing network usage (which describes the relationship between broadband providers and content/application providers) with the “sender party network pays” (SPNP) mode of termination. In South Korea, SPNP is a historical regime that applies only when the traffic ratio between Tier 1 telecom operators does not exceed 1:1.8.

While cost recovery is encouraged in South Korea, it is not mandatory, and so the big US players are playing along with the regime. Netflix, for example, has denied cost-recovery claims and sued its broadband provider, saying it had no obligation to pay for the broadband network upgrades required to handle Netflix content, which has grown nearly 26 times overnight. Netflix lost and the case is on appeal.

Similarly, Facebook required South Korean broadband providers to install Facebook servers on their networks for free. Broadband providers refused; after all, servers have a price and cannot be used for other content, and are therefore inefficient and unnecessary when hosted for free. To solve the problem, Facebook shut down some of these servers and redirected the traffic to other countries and operators. This worsened the end-user experience, and Korea’s telecom regulator fined Facebook for what it deemed intentional harm. Facebook took the matter to court and won, but the abuse caught the attention of the Korean Assembly.

In the future, the Assembly is considering updating the Telecommunications Business Act to require companies to engage in honest negotiations with information and price transparency requirements. There is no payment authority in the bill.

Data sets needed for validation

Politicians know little about international data markets. While useful information on international data traffic is available at an aggregated, global level from Cisco and Sandvine, 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 information, particularly from Strand Consult, which has been collecting data on video transmission in rural broadband networks and documenting the pros and cons of different methodological approaches. Importantly, Congress is considering addressing this through the Trusted Contributions Act, the Affordable Internet Financing Act, or the FAIR Contributions Act. This would give the FCC the authority to conduct due diligence.

In any case, there is no evidence of harm from South Korea’s broadband policy. Conversely, the country is noted for the highest penetration of fiber to the home (86 percent) and 5G (47 percent adoption). The country is considered a first mover in network innovation and a global powerhouse in content development for local consumption and export. Moreover, Google and Netflix had a record year in the country. It seems that the recovery of fair broadband costs goes hand in hand with a thriving ecosystem.



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