KFTC scrutinizes Netflix over network usage fee
Members of Citizens' Coalition for Economic Justice hold a press conference in Seoul, April 2020, to urge the Korea Fair Trade Commission to investigate the Netflix case where the streaming giant is refusing to pay network usage fees. / Korea times photo by Min Jae-yong
By Kim Jae-heun
The Korea Fair Trade Commission (KFTC) said it is investigating American streaming service Netflix for refusing to pay network use fees to local internet service providers (ISP).
The country's antitrust regulator had remained silent on the issue until recently. Due to concerns over the spread of COVID-19, the government has recommended people stay at home, which resulted in the number of Netflix subscribers skyrocketing. This has led to an overload on network traffic and SK Broadband, a unit of the country's top mobile carrier SK Telecom, has demanded the company pay network fees.
In addition, the Citizens' Coalition for Economic Justice (CCEJ) civic group issued a statement April 23, arguing that the government should strongly regulate Netflix. The group urged both the KFTC and the Korea Communications Commission (KCC), the country's top telecom regulator, to intervene and resolve the issue.
“Our stance about the ongoing legal problems between Netflix and SK Broadband is different from that of the KCC, as a concerned agency,” a KFTC official said. “We are closely looking into relevant matters reported by CCEJ last year and its recent statement.”
Last November, Netflix and SK Broadband requested the KCC to arbitrate the network fee dispute but proceedings were suspended as Netflix filed a lawsuit against the ISP. The KCC released guidelines on network fee contracts in January but failed to give any clear direction for global content providers.
According to CCEJ, Netflix and other international content providers are monopolizing the local internet market so the government should arbitrate and make them pay network fees as domestic content providers have to.
Local players Naver and Kakao have been paying annual fees of 70 billion won and 30 billion won, respectively, to domestic ISPs. Meanwhile, Netflix only pays a network use fee in the United States and France.
The Netflix issue falls under the KCC's jurisdiction but as the matter is considered an unfair trading practice and a case of reverse discrimination between foreign and domestic content providers, the civic group believes the KFTC needs to more actively engage in finding a resolution to the dispute.
The anti-trust regulator is positioned to establish and implement policies to promote fairer competition in a market where there is a prolonged monopoly under Article 3 of the Monopoly Regulation and Fair Trade Act.
The KFTC has previously intervened in other matters involving international technology companies including Facebook, Google and Amazon. In January, the KFTC ordered Netflix to rectify one of the contract terms whereby the online streamer received consent from subscribers in South Korea when they changed their service fee.
Netflix said it has signed a deal to use the network with several domestic ISPs and it has no obligation to pay the network fee as ISPs are already charging consumers for it.
“It is an act of double billing. ISPs have an obligation to provide quality internet service as they receive a fee from consumers, not us,” a Netflix official was quoted as saying by local media reports. However, the official refused to comment about any possible government intervention.
SK Broadband argues Netflix has been aggressively expanding its overseas network since the beginning of this year as the number of Netflix subscribers soared on the back of popular new-release TV series, such as Kingdom 2. In March, the local ISP installed three more network systems and an additional one last month. It now processes 400 terabytes of data maximum as a result of the upgrades, doubled from 200 terabytes previously.
The number of Netflix members here was 40,000 in 2018, but it has been increasing at a rapid pace to now reach 2 million subscribers.
Transmitting Netflix content to the massive audience here increases the cost of maintaining the quality of the network service and if content providers like Netflix don't pay, the burden of expense is passed on to consumers.
Currently, SK Broadband and KT are arguing that Netflix should pay the network fee while LG U+ and D'Live have accepted Netflix's offer to install a cache server that saves webpages and content in temporary storage to reduce load on internet traffic.
SK Broadband claims that cache server is not sufficient to solve the problem in reducing the heavy traffic.