spnp – Techdirt (original) (raw)

Dumb, Telecom Industry Backed ‘Network Fees’ Drive Twitch Out Of Korea

from the please-pay-me-extra-for-no-coherent-reason dept

Twitch has announced that the company is shutting down in Korea after regulators there imposed a ridiculous new regulatory framework that drove the company’s operational costs through the roof.

Basically: Korean telecoms convinced gullible regulators to pass a new regulatory framework wherein edge providers and content companies are forced to pay telecoms additional fees just to have their traffic successfully reach its destination (consumers). It’s in addition to bandwidth costs, and, as we’ve pointed out for a while, it’s a dumb cash grab and the latest extension of the longstanding net neutrality wars.

In a blog post, Twitch CEO Dan Clancy explains that with the addition of these new mandated network fees, the company has found it impossible to turn a profit in Korea and has been forced to close up shop:

“Ultimately, the cost to operate Twitch in Korea is prohibitively expensive and we have spent significant effort working to reduce these costs so that we could find a way for the Twitch business to remain in Korea. First, we experimented with a peer-to-peer model for source quality. Then, we adjusted source quality to a maximum of 720p. While we have lowered costs from these efforts, our network fees in Korea are still 10 times more expensive than in most other countries. Twitch has been operating in Korea at a significant loss, and unfortunately there is no pathway forward for our business to run more sustainably in that country.”

For the better part of the last few decades, global telecom giants have been trying to “double dip.” As in, not only do they charge businesses and consumers an arm and a leg for (often terrible) broadband, but they’ve been trying very hard to institute new regulatory frameworks where consumer and content companies alike pay telecoms huge sums of additional money for no coherent reason.

This idea that big ISPs are inherently owed a cut of the revenues of services traveling over their networks is what launched the net neutrality wars around the world several decades ago, when AT&T insisted Google “wouldn’t ride our pipes for free.” It’s evolved in dumber and dumber ways ever since.

Under Korea’s model, edge providers (like Netflix) are forced to pay “network service fees” to ISPs. Basically, ISPs there have claimed that they’re inherently owed more money if a TV show on Netflix is super popular, claiming they should be compensated for extra bandwidth costs.

Of course, bandwidth provisioning doesn’t really work like that. ISPs are supposed to build networks that can handle any peak capacity spikes caused by normal consumer demand. The origins of those demands are irrelevant. Consumers and edge providers have already paid an arm and a leg for bandwidth, particularly if regional monopolization has driven down any incentive to compete on price.

All they’re really doing here is trying to offload network operations and maintenance costs to someone else. In this case: Korean game streamers or Netflix users.

Demanding that popular companies pay more to telecoms just for being popular is an inherently stupid idea, but it’s been dressed up by telecom lobbyists as serious adult policy under terms such as “sender pays” or sometimes “Sending Party Network Pays” (SPNP). I’ve been dumbfounded by how these proposals have been treated as serious policy.

The efforts always begin with false claims that companies like Google and Netflix are somehow “getting a free ride” on the internet, despite spending billions in bandwidth, CDNs, undersea cables, and cloud infrastructure. From there, they usually involve some flavor of false claim that this model will help expand broadband availability to those in need. But its only real function is to fatten telecoms’ purses.

Like many countries, Korean regulators largely favor just three big major ISPs, which then influence policy determinations to an extremely lopsided degree. This muted competition, combined with regulatory capture, plus the SPNP model, has driven up costs for Korean consumers (see Michael Nelson’s good 2021 piece on this, or this 2022 Techdirt story by Konstantinos Komaitis).

Now, regulatory capture is driving edge companies out of business, and driving up both bandwidth and content costs for consumers. It’s all predatory nonsense created by regulatory capture and corruption, and the telecom policy marionettes pushing the idea aren’t operating in good faith. They’ve hijacked regulators to implement systems that deliver telecoms billions of additional dollars for doing nothing.

And if you think this is only happening in Korea, it’s not. It’s been an ongoing debate in the EU, where telecoms have floated a direct tax on any company that accounts for more than 5 percent of a telco’s average peak traffic. Here in the States, FCC Commissioner Brendan Carr (R, AT&T) has been a big proponent of the idea for several years now.

Again, it’s basically telecoms trying to get paid twice for the same (often substandard) service. That it has been dressed up as a serious policy proposal is embarrassing. California’s net neutrality rules ban such practices, and if they’re worth anything, the FCC’s soon-to-be-restored rules will as well.

Filed Under: fcc, lobbying, net neutrality, open internet, regulators, sender pays, sening party network pays, south korea, spnp, streaming, telecom
Companies: amazon, twitch

The Global Trend That Could Kill The Internet: Sender Party Network Pays

from the corporate-subsidies dept

There is a Korean proverb that says: “There is always a way out, look for it.” South Korea’s recent revision of its Telecommunications Business Act (TBA) might, however, be the one thing South Korea is not able to get out of, unless it abandons its plans for redistributing the monopoly power back to telecommunication providers.

South Korea, just like Europe, faces similar challenges — an ageing population, and the need to compete in high-value sectors and create a digital ecosystem that is robust and facilitates economic and social growth. It is, therefore, quite ironic that both countries are considering policies that could put at risk and undermine much of the Internet and their digital futures.

The “Sending-Party-Network-Pays”(SPNP) proposal, currently at the center of the respective countries’ legislative agendas, is premised on a simple idea: content platforms that generate and send most internet traffic over the Internet should pay a certain fee to telecommunications providers in order to have those providers deliver that traffic to users. This model may make perfect sense in the telephony environment, where traditionally telephone operators have a termination monopoly for their customers; but, when it comes to the Internet, this proposal will prove counterproductive and dangerous as it creates bottlenecks for investment and degrades users’ internet experience.

We often hear that the internet is a network of networks. This is not a philosophical statement; rather, it means that, through voluntary agreements, networks decide independently with whom to interoperate while identifying ways to optimize connectivity in order to meet users’ demands. This ensures resilience and, at the same time, the robustness of the system. As a decentralized network, the Internet has no central authority or a gatekeeper to determine which networks can and cannot join, meaning that any network is able to autonomously participate, decide on which other network to interconnect and at what cost and become part of the global Internet. The only requirement is that it “speaks” the IP protocol language.

In 2013, a still relevant report by the OECD confirmed the success of the internet model in comparison to traditional telephony. “While national regulatory authorities have closely regulated circuit-switched (TDM) traffic exchange to achieve such policy goals as universal connectivity and competition, the Internet market has attained those same goals with very little regulatory intervention, while performing much better than the older markets in terms of prices, efficiency, and innovation”.

This fundamental design choice and the benefits it has produced are now getting ignored and the results are at best unpredictable and, in the long run, possibly irreversible.

In 2016, South Korea became the first country to enforce a “Sending-Party-Network-Pays” model, requiring ISPs to charge fees for the volume of traffic they were exchanging between them. Although enforced only among ISPs to date, it has already been detrimental to South Korea’s competitive market. With high fees being imposed, a number of South Korean and foreign content providers were left with only two options: exit the market or degrade their services. In the meantime, smaller Korean providers and a host of startups have to face insurmountable barriers to entry in the market.

For a long time, South Korean users have enjoyed fast and reliable internet connectivity and South Korea was an example other countries looked to for addressing issues of connectivity. Not any longer. According to a recent report, in South Korea, “regulation appears to have discouraged peering and investment […], leading to higher costs for ISPs, initially lower quality for users, and need for more regulation to correct unintended consequences.” In particular, in comparison to Europe, Internet access fee disparity skyrocketed to 8-10 times while, when it comes to the US, that figure was 5-6 times, causing many content providers to intentionally degrade their services.

Europe may have to face a similar reality soon should it decide to move forward with its own “Sending-Party-Network-Pays” model. Since March, when the European Commissioner for the Internal Market, Thierry Breton, announced the European Commission’s intention to move forward with such a plan, there has been widespread concern from a diverse set of actors across Europe. Civil society has condemned the proposal, specifically regarding the barriers to entry it will introduce as well as its potential impact on “freedom of expression, freedom to access knowledge, freedom to conduct business and innovation in the EU”. Similarly, the European Consumer Organisation has stated that “for consumers in particular, the risks or potential disadvantages of establishing measures such a SPNP system would range from a potential distortion of competition on the telecom market, negatively impacting the diversity of products, prices and performance, to the potential impacts on net neutrality, which could undermine the open and free access to the Internet as consumers know it today.” Similarly, Europe’s Mobile Virtual Network Operators (MVNO) group called for a “careful impact assessment”, while the European Association for Commercial Television and Video on Demand (ACT) urged European “institutions to thoroughly consider the wider implications before taking any actions that would directly or indirectly impact the stability and sustainability of the European audiovisual industry (and consumer rights) as a whole.

What could then be driving this fundamental shift both in Europe and in South Korea, especially given that the proposal has been rejected by everyone bar a handful of telecommunication companies?

Let’s think of this in terms of policy objectives. Telecommunication providers argue that a “fair contribution” scheme is needed for infrastructure and the need for both countries to meet their respective digital agenda targets. If this is really the case, however, then the starting point of the conversation is wrong. Throwing money to the largest telecommunication companies will not lead to infrastructure development so much as encourage monopolistic behavior and unpredictability. Considering that such deals will most definitely be confidential, it will also be hard for anyone to know the tradeoffs that will need to be agreed on every time. A pay-off will simply extend the termination monopoly telecommunication providers enjoy from telephone to content; it will not address any real infrastructure concerns.

To this end, a real infrastructure strategy might be necessary. In its preliminary assessment of the SPNP proposal, the Body of European Regulators for Electronic Communications (BEREC) said that, although “debate about network investments, traffic volumes and cost drivers needs to be carefully analysed”, at the same time, “the internet has proven its ability to cope with increasing traffic volumes, changes in demand patterns, technology, business models, as well as the (relative) market power between market players”. The focus, therefore, should be on services that facilitate user experience and enhance the resilience and stability of the Internet, including Internet Exchange Points (IXPs), Content Delivery Networks (CDNs), caches and the like.

Bad ideas tend to be solutions to problems no one really has. And, truly, there is no identifiable problem in the market of interconnection. The norms and rules that were set years ago continue to apply, ensuring connectivity. Europe must learn from the South Korean experience and avoid replicating mistakes that, in the end, will only harm its citizens and its digital future. As other countries, including the UK and India, are starting to flirt with similar ideas, the conversation about what sort of a digital future we want becomes increasingly pressing.

Konstantinos Komaitis, Internet policy expert and author & K.S. Park, Professor, Korea University, Director, Open Net

Filed Under: competition, eu, greed, korea, sender pays, south korea, spnp, telcos, thierry breton