[Reporter's Notebook] Will Netflix be forced to pay for network use fee?

Netflix Logo. Courtesy of Netflix

By Kim Hyun-bin

Netflix, a global streaming giant, has been taking a "my way or the highway" approach with local telecom companies as it believes to have the upper hand in negotiations as the majority of local corporations are currently seeking to ink deals with the U.S. content provider.

However, the National Assembly passed a revised bill Wednesday seemingly favoring the telecom companies, making it mandatory for foreign content providers to pay for network use, which most foreign companies have not been doing.

The National Assembly Science and Technology Committee said, "Major content providers should pay local telecom companies for network services in Korea in return for continuing their content services, which usually cause heavy network traffic. The revised law is asking global content providers to spend more to make sure their content service quality to Korean customers is guaranteed,"

SK, KT and LG have spent trillions of won in building networks but several foreign content companies have been taking up nearly half of the data traffic without paying fees.

The three telecom companies welcomed the move, but local portals and IT companies such as Naver and Kakao worry the new regulation will negatively affect local companies that are already paying hefty fees for network use.

"Under the new regulation, telecom companies will ask for a higher network use fees," an IT company official said. "Foreign content providers will not pay for the traffic use and only increase the burden on local firms."

Netflix is currently engaged in a lawsuit against SK Broadband (SKB) arguing it should not pay for network use. Meanwhile, local players such as Naver and Kakao have been paying annual fees in the tens of billions of won to domestic local internet service providers (ISP). Netflix only pays a network use fee in the United States and France. However, with the recent revision the tide could turn in favor of SKB.

SKB has no choice but to approach the issue aggressively as it is seeking to expand its own over-the-top (OTT) service "Wavve," while finding it difficult to cope with the increase in its network traffic due to Netflix's "freeloading."

Despite the controversy, the country's leading pay-per-view provider, KT, has not been vocal about the matter as opposition to Netflix's actions could make it difficult to secure a partnership with the streaming giant, negotiations for which are underway.

KT CEO Ku Hyeon-mo

"Major foreign content providers just like local content providers need to pay a network use fee," a KT official said. "We are currently in negotiations with Netflix, but we are unable to provide details on the matter."

Industry watchers believe, KT will not pressure Netflix for network fees in order to swiftly secure a deal, as an exclusive contract with LG Uplus is set to expire in the latter half of the year.

LG inked an exclusive deal in November 2018 to stream the U.S. firm's content on its IPTV and OTT platforms.

Thanks to the partnership, LG was able to expand its IPTV subscriber base, which led to a surge in sales. The company recorded 4.47 million IPTV subscribers in 2019, an increase of 11.4 percent from the year before.

Netflix has gained explosive popularity in recent months during the COVID-19 pandemic, which has closed schools were and placed many people working from home.

Netflix's presence in the country continues to grow at a rapid rate with it acquiring 15.8 million new subscribers in the first quarter of this year ― in March alone it acquired around 2.72 million new members.

Due to this success, LG and KT are doing their upmost to secure a deal with Netflix to better strengthen their market share in the OTT and IPTV market, knowing they could face major disadvantages in negotiations.

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