A service provider seeking toll from a content provider

When I first came across this news from South Korea, I was completely incredulous: South Korean Internet service provider SK Broadband has sued Netflix to pay for costs from increased network traffic and maintenance work because of a surge of viewers! SK Broadband claimed that Netflix’s traffic on their network has increased about 24 times, from 50 Gbps in May 2018 to 1,200 Gbps in September 2021!

My first, instinctive reaction was: “Hey, isn’t Netflix merely a content provider? And doesn’t SK Broadband have a contract only with end-users and get paid by its users/customers for the service provided?”.

But in June 2021, a Seoul court had concluded that Netflix had to pay network usage fees! The Court said, “Netflix is at least receiving network services, including management of the network quality, at a cost. It is also reasonable to say that Netflix has the obligation of paying the price for the services to SK Broadband.”

Netflix had appealed against this ruling, and now SK Broadband is using that June verdict to seek the network fees again!

I found this ruling utterly confounding. Netflix’s own logic in response seemed very sound: “Our duty ends with creating content and leaving it accessible”. That seems totally fair.

For example, let us parse this situation with other scenarios.

Scenario 1:
Network equivalent: roads (built by the Government)
Netflix equivalent: a car brand that produces considerably faster cars

Could the Government ask this one car brand to pay something for road maintenance because its cars are faster and affect the movement of other, slower cars?

Scenario 2:
Network equivalent: electricity (provisioned by the Government)
Netflix equivalent: a household device/equipment that uses a lot of power

Could the Government, or a private electricity provider, ask the manufacturers of that gadget/device (say microwave ovens, or washing machines, for instance) to pay more to them so that they can ensure an uninterrupted supply of power?

Scenario 3:
Network equivalent: store shelves (owned by a departmental chain)
Netflix equivalent: a product brand that has a large-sized box

Could the departmental store ask the brand to pay something so that they can make more space to accommodate the larger-sized boxes?

In scenarios 1 and 2, the Government or the electricity provider obviously cannot ask one car brand to pay more to maintain and manage the roads or power supply. Imagine the Government asking a brand of car or two-wheeler to pay something so that they can create a separate lane for those brand vehicles alone to smoothly cross Bangalore’s famous Silk Board signal!

If you replace cars in scenario 1 with trucks, then trucks that are overloaded beyond a certain capacity are indeed asked to a penalty at the toll! But the truck manufacturer is not asked to pay that up in the anticipation that since they have manufactured the truck, it will be overloaded. The user who overloads a single truck is asked to pay, much like a user who seeks more content is being asked to pay more by a network.

In scenario 3, departmental stores routinely ask brands to pay more to either give their products priority in position within the store or to place them literally on a pedestal.

But then, there is a difference: roads are a public utility and are supposed to be common for any kind of vehicle without bias. A store shelf is a private property and the store could do what it wants within its premises.

So, the logical next question: what is SK Broadband’s network? A public utility or private service?

What I get via Airtel or ACT Broadband, in India, is the same as what people in South Korea get from SK Broadband – the basic access to the internet, which is like the road.

Now, between an ACT Broadband or an Airtel, I, as a user, could choose a specific plan to suit my budget and speed-based requirements. If I want to watch a lot of videos, I may prefer a higher-priced, faster plan that lets me watch videos without buffering or interruptions.

It is incumbent on the network service provider who is offering me access to the internet to appropriately give me a faster pipe to fulfill the demands of the plan I opted for.

If a lot of people access streaming audio and that is hugely in demand, could the network service provider ask Spotify to pay something to help manage and maintain the network? Of course not. And yet Netflix has been ruled by a court to pay!

This flies in the face of net neutrality that states that internet service providers should treat all data on the internet equally, without giving preference to any content.

However, Netflix did agree to pay Comcast in the US back in February 2014, for faster speeds to Comcast’s customers, resulting in a better Netflix experience!

Verizon’s CFO said in March 2014, “They never contemplated someone dumping as much volume into the peering point as, say, a Netflix. So what happens is you become out of balance”.

A week later, Netflix’s Reed Hastings wrote a blog post arguing against internet tolls, and even explained them paying Comcast as, “Netflix believes strong net neutrality is critical, but in the near term we will in cases pay the toll to the powerful ISPs to protect our consumer experience. When we do so, we don’t pay for priority access against competitors, just for interconnection. A few weeks ago, we agreed to pay Comcast and our members are now getting a good experience again.”

Reed also explains the common sense behind all that increase in net traffic: “Some ISPs say that Netflix is unilaterally dumping as much volume as it wants onto their networks. Netflix isn’t “dumping” data; it’s satisfying requests made by ISP customers who pay a lot of money for high-speed Internet. Netflix doesn’t send data unless members request a movie or TV show.”

Look at that 2014 statement against SK Broadband’s claim. The network service provider is asking Netflix to pay more for creating hugely in-demand content!

Even internet transit providers like Cogent and Level 3 (Indian equivalents include brands like Airtel, Sify, Tata Communications, from what I understand) have written to the FCC back in 2014, arguing against tolls, on the back of the Netflix-Comcast deal.

But consider this entire episode from a user’s perspective, one who does not want streaming video! Could they argue, “Hey, I want fast internet for just browsing the internet and email. I don’t want to watch streaming video at all. Why should I pay more to my internet service provider that is upgrading its network to deal with the peak load forced by Netflix’s massive traffic?

Yes, they can argue that, but they can also pick a lower speed plan that does not cost as much as a high-speed plan that is meant for good quality streaming experience. That’s like buying a hatchback and not complaining that a premium, faster car is way too expensive.

Another argument could be around essential services. Could there be an argument that voice-over-IP calls between people are very essential and because Netflix eats up more than 30% of the network data during peak hours, the call quality is deteriorating?

Yes, there could be an argument like that, but isn’t that incumbent upon the network service provider to provide what is best for its end users – people like us? As against asking a content provider to pay up more to do their job better and improve their network’s capability?

Yet another argument, using the road analogy (scenario 1 above) could be about how Governments are incentivizing electric cars by enabling the EV brands to sell cheaper cars, while the petrol equivalents still have to sell a higher, full-priced car. Could there be a rationale there? For instance, Governments subsidizing the Netflix-equivalent cars (EVs) on the road while letting the non-Netflix traffic (petrol cars) be sold for higher costs with no subsidy?

Possibly, but I would argue that there is a larger good coming out of that partiality – the planet’s better future 🙂 There is no larger good coming out of treating only one kind of internet traffic differently and asking those content owners to cough up something extra only because they have cracked the code for highly demanded content.

This South Korean court ruling is enormously interesting, even though it beats all logic. Netflix would no doubt fight this tooth and nail because it could have larger ramifications for them across multiple countries.



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