The Global Trend That Could Kill The Internet: Sender Party Network Pays

from the corporate-subsidies dept

There is a Korean proverb that says: “There is always a way out, look for it.” South Korea’s recent revision of its Telecommunications Business Act (TBA) might, however, be the one thing South Korea is not able to get out of, unless it abandons its plans for redistributing the monopoly power back to telecommunication providers.

South Korea, just like Europe, faces similar challenges — an ageing population, and the need to compete in high-value sectors and create a digital ecosystem that is robust and facilitates economic and social growth. It is, therefore, quite ironic that both countries are considering policies that could put at risk and undermine much of the Internet and their digital futures. 

The “Sending-Party-Network-Pays”(SPNP) proposal, currently at the center of the respective countries’ legislative agendas, is premised on a simple idea: content platforms that generate and send most internet traffic over the Internet should pay a certain fee to telecommunications providers in order to have those providers deliver that traffic to users. This model may make perfect sense in the telephony environment, where traditionally telephone operators have a termination monopoly for their customers; but, when it comes to the Internet, this proposal will prove counterproductive and dangerous as  it creates bottlenecks for investment and degrades users’ internet experience. 

We often hear that the internet is a network of networks. This is not a philosophical statement; rather, it means that, through voluntary agreements, networks decide independently with whom to interoperate while identifying ways to optimize connectivity in order to meet users’ demands. This ensures resilience and, at the same time, the robustness of the system. As a decentralized network, the Internet has no central authority or a gatekeeper to determine which networks can and cannot join, meaning that any network is able to autonomously participate, decide on which other network to interconnect and at what cost and become part of the global Internet. The only requirement is that it “speaks” the IP protocol language. 

In 2013, a still relevant report by the OECD confirmed the success of the internet model in comparison to traditional telephony. “While national regulatory authorities have closely regulated circuit-switched (TDM) traffic exchange to achieve such policy goals as universal connectivity and competition, the Internet market has attained those same goals with very little regulatory intervention, while performing much better than the older markets in terms of prices, efficiency, and innovation”. 

This fundamental design choice and the benefits it has produced are now getting ignored and the results are at best unpredictable and, in the long run, possibly irreversible. 

In 2016, South Korea became the first country to enforce a “Sending-Party-Network-Pays” model, requiring ISPs to charge fees for the volume of traffic they were exchanging between them. Although enforced only among ISPs to date, it has already been detrimental to South Korea’s competitive market. With high fees being imposed, a number of South Korean and foreign content providers were left with only two options: exit the market or degrade their services. In the meantime, smaller Korean providers and a host of startups have to face insurmountable barriers to entry in the market.  

For a long time, South Korean users have enjoyed fast and reliable internet connectivity and South Korea was an example other countries looked to for addressing issues of connectivity. Not any longer. According to a recent report, in South Korea, “regulation appears to have discouraged peering and investment […], leading to higher costs for ISPs, initially lower quality for users, and need for more regulation to correct unintended consequences.”  In particular, in comparison to Europe, Internet access fee disparity skyrocketed to 8-10 times while, when it comes to the US, that figure was 5-6 times, causing many content providers to intentionally degrade their services.  

Europe may have to face a similar reality soon should it decide to move forward with its own “Sending-Party-Network-Pays” model.  Since March, when the European Commissioner for the Internal Market, Thierry Breton, announced the European Commission’s intention to move forward with such a plan, there has been widespread concern from a diverse set of actors across Europe. Civil society has condemned the proposal, specifically regarding the barriers to entry it will introduce as well as its potential impact on “freedom of expression, freedom to access knowledge, freedom to conduct business and innovation in the EU”. Similarly, the European Consumer Organisation has stated that “for consumers in particular, the risks or potential disadvantages of establishing measures such a SPNP system would range from a potential distortion of competition on the telecom market, negatively impacting the diversity of products, prices and performance, to the potential impacts on net neutrality, which could undermine the open and free access to the Internet as consumers know it today.” Similarly, Europe’s Mobile Virtual Network Operators (MVNO) group called for a “careful impact assessment”, while the European Association for Commercial Television and Video on Demand (ACT) urged European “institutions to thoroughly consider the wider implications before taking any actions that would directly or indirectly impact the stability and sustainability of the European audiovisual industry (and consumer rights) as a whole.  

What could then be driving this fundamental shift both in Europe and in South Korea, especially given that the proposal has been rejected by everyone bar a handful of telecommunication companies? 

Let’s think of this in terms of policy objectives. Telecommunication providers argue that a “fair contribution” scheme is needed for infrastructure and the need for both countries to meet their respective digital agenda targets. If this is really the case, however, then the starting point of the conversation is wrong. Throwing money to the largest telecommunication companies will not lead to infrastructure development so much as encourage monopolistic behavior and unpredictability. Considering that such deals will most definitely be confidential, it will also be hard for anyone to know the tradeoffs that will need to be agreed on every time. A pay-off will simply extend the termination monopoly telecommunication providers enjoy from telephone to content; it will not address any real infrastructure concerns. 

To this end, a real infrastructure strategy might be necessary. In its preliminary assessment of the SPNP proposal, the Body of European Regulators for Electronic Communications (BEREC) said that, although “debate about network investments, traffic volumes and cost drivers needs to be carefully analysed”, at the same time, “the internet has proven its ability to cope with increasing traffic volumes, changes in demand patterns, technology, business models, as well as the (relative) market power between market players”. The focus, therefore, should be on services that facilitate user experience and enhance the resilience and stability of the Internet, including Internet Exchange Points (IXPs), Content Delivery Networks (CDNs), caches and the like.  

Bad ideas tend to be solutions to problems no one really has. And, truly, there is no identifiable problem in the market of interconnection. The norms and rules that were set years ago continue to apply, ensuring connectivity. Europe must learn from the South Korean experience and avoid replicating mistakes that, in the end, will only harm its citizens and its digital future. As other countries, including the UK and India, are starting to flirt with similar ideas, the conversation about what sort of a digital future we want becomes increasingly pressing.

Konstantinos Komaitis, Internet policy expert and author & K.S. Park, Professor, Korea University, Director, Open Net

Filed Under: competition, eu, greed, korea, sender pays, south korea, spnp, telcos, thierry breton

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