Seismic Shifts In International Data Markets Demand Broadband Internet Policy Update

The global policy movement to improve connectivity and bridge the digital divide has generated reports on international data markets and associated regulatory policies. The papers sometimes introduce confusing terms: usage, transitivity, gaze, and association. Each term has a specific meaning and practice. Policymakers can benefit from a summary of proposed policies and tools – as well as a comprehensive review of their countries’ networks and practices. Here are some key findings from the reports.

The emergence of a parallel, registered and unregulated internet by platforms

The German Federal Network Agency commissioned a study on competition in transit and analog markets (141 pages), noting that the issue had not been examined by European regulators for at least 5 years. The report notes that internet traffic in Europe is growing by 25 percent year-on-year, and 80 percent of this is video, social media, gaming, and only 5-6 players (such as Netflix, Amazon Prime, YouTube, etc.) it) accounted for more than half of the total traffic. These players have more international backbone capacity than the world’s broadband providers and have given up on third-party transit instead of building their own backbones, submarine cables and data centers – and the transmission business has plummeted as a result. The platforms largely avoid online exchanges where prices are transparent, instead building networks dedicated to their own content and maximizing the efficiency and profitability of their services.

The massive development and expansion of backbone infrastructure and delivery by these players has permanently changed the overall global structure of the Internet, the interconnection structure, and the relationship between platforms and broadband service providers, creating competitive disadvantages for operators. The continued growth of Internet traffic continues to shape the dynamics of the Internet’s architecture, with the disproportionate growth of streaming video and cloud services continuing to have the greatest impact. Despite the many advantages of providing private networks, conflicts can arise when parties exchange data, given the relative market power between non-identical entities. While the structure of the Internet has changed dramatically in the past decade or so, the legal and regulatory framework for traffic flows has changed little, and the largest platforms are fundamentally 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 versus termination

South Korea has had a framework for network usage compensation for nearly a decade. The spirit of the policy reflects an acknowledgment of the shared responsibility between broadband providers and content/application providers to ensure quality data delivery and user experience. In practice, the policy ensures that the cost of fiber installation and maintenance is recovered from the content provider to the broadband provider’s primary router. This provides bandwidth dedicated to the specific content and protects against degradation of the network experience for users who do not access that specific content.

Importantly, this practice has nothing to do with terminating traffic to end users. Analysys Mason, the Internet Society, and others seem to be confusing the use of network (which describes the relationship between broadband providers and content/application providers) with the “sending party pays network” (SPNP) termination scheme. In South Korea, the SPNP is a historical system that only applies between Tier 1 telecom 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 the big US players are playing the system. For example, Netflix denied cost recovery claims and took the broadband service provider to court, saying it had no obligation to pay for the broadband network upgrades required to run Netflix content that increased 26-fold overnight. Netflix lost, case is on appeal.

Similarly, Facebook required South Korean broadband service providers to install Facebook servers within their networks for free. broadband providers abstained; After all, servers have a cost and cannot be reused for other content, and thus are inefficient and redundant if provided for free. To force the problem, Facebook shut down some of these servers and redirected traffic to other countries and operators. This deteriorated the end-user experience, and the telecoms regulator in Korea fined Facebook for what it deemed willful damage. Facebook took the case to court and won, but the abuse caught the attention of the Korean Society.

Going forward, the association is considering updating the Telecom Business Act to mandate that companies enter into good faith negotiations with data requirements and pricing transparency. The bill has no authorization fees.

Data sets needed for verification

Policymakers have little data on international data markets. While useful information about international traffic on a global macro level is available from Cisco and Sandvine, it doesn’t tell us much about the behavior of the traffic exchange actors and the microeconomics of individual networks.

Initial efforts are underway to provide more data, notably from the Strand Consult which collects data on video data streaming on rural broadband networks and documents the pros and cons of different methodological approaches. More importantly, Congress has considered addressing this through the Affordable Internet Funding with Trusted Contributions Act, or the FAIR Contributions Act. Which would enable the FCC to conduct the required study.

In any case, there is no data showing the damage caused by broadband policy in South Korea. Conversely, the country is celebrated for the highest penetration rates of fiber to the home (86 percent) and 5G (47 percent adoption). The country is the first driver in network innovation and a global force in developing content for local consumption and export. Moreover, Google and Netflix enjoyed a year of record profits in the country. Broadband’s fair cost recovery seems to go with a thriving ecosystem.


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