The Global Policy Movement to Improve Connectivity and End the Digital Inequality has released a report on international markets for data and related regulatory policies. The documentation introduces sometimes confusing terminology: usage, transit, peering, and interconnection. Each term has a specific meaning and experience. In addition to a thorough overview of their country’s networks and practices, policymakers can use a summary of policies and proposed tools. Here are some key findings from the reports.
The emergence of a parallel, proprietary and unregulated Internet across platforms
Germany’s Federal Network Agency has commissioned a study on competition in the transit and peering markets (page 141), noting that the issue has not been addressed by European regulators for at least 5 years. The report shows 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 (eg Netflix, Amazon Prime, YouTube platforms, etc.) account for more than half of all traffic . These players have more international backbone capacity than global broadband providers, and instead of building their own backbones, submarine cables, and data centers, they’ve abandoned third-party transit — resulting in declining transit business. Platforms often avoid online exchanges where prices are transparent, instead building order lines for their proprietary content and increasing the efficiency and profitability of their services.
The massive development and expansion of backbone and delivery infrastructures by these players has permanently changed the overall global internet architecture, 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 a major impact. Despite the many advantages of private provisioning of networks, given the relative market power between non-aligned entities, conflicts may arise when parties exchange data. While the architecture of the Internet has changed dramatically over the past decade, the legal and regulatory framework for traffic flows has changed little, and the largest platforms remain largely unregulated in these international data markets. An exception is South Korea, which has a unique approach to broadband policy and is a recognized global leader in broadband.
Network usage and termination
South Korea has had a network compensation system for almost a decade. The ethos of the policy reflects the recognition of shared responsibility between broadband providers and content/application providers to ensure the quality of data delivery and user experience. In effect, the policy provides coverage for fiber installation and maintenance costs from the content provider to the broadband provider’s core router. This provides dedicated bandwidth for a given content and protects against a degraded network experience for users not accessing that content.
Most importantly, this practice has nothing to do with stopping traffic to end users. Analysys Mason, the Internet Society and others appear to be confusing network usage (which describes the relationship between broadband providers and content/application providers) with the “sender network payment” (SPNP) termination regime. In South Korea, SPNP is a historical mode that is only used between Tier 1 telecom operators when the traffic exchange rate does not exceed 1:1.8.
While reimbursement is encouraged in South Korea, it’s not mandatory, so the big US players play along with the regime. For example, Netflix rejected reimbursement claims and sued its broadband provider for not having to pay for broadband upgrades needed to handle a 26-fold increase in Netflix content 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 cost and cannot be reused for other content, so are inefficient and redundant if hosted for free. To solve the problem, Facebook shut down some of these servers and redirected traffic to other countries and operators. This worsened the end-user experience, and Korea’s telecommunications regulator fined Facebook for intentional harm. Facebook took the matter to court and won, but the abuse drew the attention of the Korean Assembly.
In the future, the Assembly will consider updating the Telecommunications Business Act to ensure that companies can negotiate in good faith with data and price transparency requirements. There is no commission mandate in the promissory note.
Data sets required for validation
Policymakers have little knowledge of international data markets. While useful information about international data traffic is available on an aggregated, global level from Cisco and Sandvine, it tells us little about the behavior of participants in traffic exchanges and the microeconomics of individual networks.
Preliminary efforts are underway to provide more data, particularly from Strand Consult, which collects data on streaming video data on rural broadband networks and documents the pros and cons of different methodological approaches. Importantly, Congress considered addressing this issue through the Affordable Internet Financing with Reliable Contributions Act, or FAST Contributions Act. this allows the FCC to conduct the necessary investigation.
In any case, there is no evidence to suggest that South Korea’s broadband policy is harmful. In contrast, the country is noted for the highest penetration rate of fiber to the home (86 percent) and 5G (47 percent adoption). The country is considered a prime mover in online innovation and a global force in developing content for local consumption and export. In addition, Google and Netflix had a record year in the country. Fair broadband reimbursement seems to go hand in hand with a thriving ecosystem.