An Unexpected Backlash

Korean Internet companies say the new enforcement decree of the "Netflix law" puts more burden on them.

The Ministry of Science and ICT announced on Sept. 8 the enforcement decree of the Telecommunications Business Act, which was recently revised to prevent global content providers (CPs) such as Netflix from getting a free ride on the networks of domestic telecom companies.

The enforcement decree, however, drew strong criticism from Korean internet service providers, including Naver and Kakao. Industry insiders said the decree simply puts more burden on Korean internet companies.

The revised Telecom Business Act, which is called the “Netflix law,” requires value-added common carriers to take measures needed to stabilize their services. Companies subject to the enforcement decree are required to take such measures as securing multiple servers and enough server capacity to ensure stable service provision and submit implementation data every year. In addition, they are required to consult with major telecommunication service providers when traffic soars.

The problem is the scope of the companies subject to the enforcement decree. The decree stipulates that carriers that have one million or more daily users and account for more than 1 percent of total traffic in Korea are subject to it. Accordingly, the decree will cover not only Netflix, Google and Facebook but Korean companies such as Naver and Kakao. According to the National Assembly, as of August 2019, Google including YouTube accounted for 25.8 percent of the total traffic of the nation's three major telecommunications service providers, dwarfing those of Naver (2.5 percent) and Kakao (1.8 percent).

Korean internet companies say that the enforcement decree imposes excessive duties on them based on unclear standards such as the amount of traffic. The Korea Internet Companies Association said, "The new decree is unprecedented as it holds value added common carriers, who are not telecommunications service providers, responsible for network stability.” It argued that the decree must be revised because it has many problems such as going beyond the scope of the act and a possible violation of the basic rights set out by the Constitution."

Internet companies say that they cannot bear the burden of maintaining service stability because they are already paying unprecedentedly high network fees. Naver and Kakao each paid nearly 100 billion won a year to mobile carriers as network use fees in 2016.

Under these circumstances, analysts say that it the Netflix law goes into implementation, CPs will be required to pay more, which will eventually increase burdens on consumers. "The enforcement decree passes the burden of maintaining network quality onto value added carriers, not telecommunications service providers," an industry insider said. "The decree encroaches upon the freedom of business guaranteed by the Constitution and may violate free trade agreements (FTAs)."

Overseas CPs such as Netflix and Google have sued mobile carriers, claiming that they do not need to pay for network use. When SK Broadband told Netflix to pay for the use of its network, Netflix filed a lawsuit with the Seoul Central District Court in April, saying that the maintenance and management of telecommunication networks is not a responsibility of CP companies. The trial will begin on Oct. 30.

"A stable provision of services is a key factor that determines the competitiveness of CP companies,” said professor Lee Kyung-won of Dongguk University. “It is an excessive market intervention to make it mandatory for them to submit data on the status of implementation." Lee added that while the decree targets Netflix, it actually affects Korean CPs and increases burdens on small and medium-sized companies.

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