Seismic Shifts In International Data Markets Demand Broadband Internet Policy Update

The global policy movement to improve connectivity and close the digital divide has produced reports on international markets for data and associated regulatory policies. The papers present sometimes confusing terminology: use, transit, peering, and interconnection. Each term has a specific meaning and practice. Policy makers may benefit from a summary of policies and proposed instruments—in addition to a thorough review of networks and practices in their own country. Here are some key findings from the reports.

The Rise of Parallel, Proprietary, and Unregulated Internet of Platforms

Germany’s Federal Network Agency has commissioned a study on competition in the transit and peering markets (141 pages), noting that the issue has not been examined by European regulators for at least 5 years. The report observes that the internet traffic in Europe is growing 25 percent every year, that 80 percent of this traffic is video, social media, and games, and that only 5-6 players (i.e. those platforms Netflix, Amazon Prime, YouTube and others) account for more than half of all traffic. These players have more international backbone capacity than the world’s broadband providers and are jettisoning third-party transit instead of building their own backbones, submarine cables, and data centers. – Travel business has declined as a result. Platforms have largely avoided internet exchanges where prices are transparent, instead building bespoke networks for their proprietary content and maximizing the efficiency and profitability of their services.

The massive development and expansion of the backbone and delivery infrastructures of these players has permanently changed the overall global internet architecture, the interconnection structure, and the relationship between platforms and broadband providers, which creates competitive disadvantages for operators. The continued growth of internet traffic continues to shape the dynamics of internet architecture, with the continued disproportionate growth of video streaming and cloud services having the greatest impact. Despite the many advantages of private provision of networks, conflicts may arise when parties exchange data, due to the relative market power between disparate entities. While the architecture of the internet has changed dramatically over the past decade or so, the legal and regulatory framework for traffic flows has changed little, and most platforms are unregulated in this regard. which are international data markets. The exception is South Korea which has a unique approach to broadband policy and is recognized as the global leader in broadband.

Network Usage vs. Termination

South Korea has had a framework for network usage fees for almost a decade. The ethos of the policy reflects a 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 ensures the recovery of the cost of installation and maintenance of the fiber from the content provider to the core router of the broadband provider. It provides dedicated bandwidth for given content and protects against degradation of the network experience for users who cannot access particular content.

Importantly, this practice has nothing to do with terminating traffic to end users. It appears that Analysys Mason, Internet Society, and others are confusing the use of the network (which describes the relationship between a broadband providers and content/application providers) in ending the regime of “sending party network pays” (SPNP ). In South Korea, SPNP is a historical regime that only applies between Tier 1 telecommunications operators if their traffic exchange rate does not exceed 1:1.8.

While cost recovery is encouraged in South Korea, it is not mandatory, and so major US players are playing along with the regime. For example, Netflix rejected claims for cost recovery and took a broadband provider to court, saying it had no obligation to pay for the broadband network upgrades needed to handle Netflix content. which increased 26 times almost overnight. Netflix lost, and the case was appealed.

Similarly, Facebook asked South Korean broadband providers to install Facebook servers within their networks for free. The broadband providers refused; after all, servers have costs and cannot be repurposed for other content, and are therefore inefficient and redundant when set up for free. To force the issue, Facebook shut down some of these servers and rerouted traffic to other countries and operators. It degraded the end user experience, and Korea’s telecom regulator fined Facebook for what it deemed intentional harm. Facebook took the issue to court and won, but the abuse caught the attention of the Korean Assembly.

Going forward, the Assembly is considering updating the Telecommunications Business Act to stipulate that companies engage in fair negotiations with requirements for data and price transparency. The bill has no fee mandate.

Datasets required for verification

Policymakers have little data about international data markets. While useful information on international data traffic is available at the aggregate, global level from Cisco and Sandvine, it tells us little about the behavior of actors within a traffic exchange and the microeconomics of individual networks.

Preliminary efforts have been made to provide more data, especially from Strand Consult which has collected data on streaming video data in rural broadband networks and documented the pros and cons of different methodological approaches. It is important that Congress consider solving it through the Funding Affordable Internet with Reliable Contributions Act or the FAIR Contributions Act. which will empower the FCC to conduct the necessary study.

In any event, there is no data showing harm from South Korea’s broadband policy. In contrast, the country is celebrated for the highest penetration rate for fiber to the home (86 percent) and 5G (47 percent adoption). The country is considered a first mover in network innovation and a global force in content development for local consumption and export. In addition, Google and Netflix enjoyed a year of record revenue in the country. It seems that broadband fair cost recovery goes hand in hand with a thriving ecosystem.


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