South Korea: Netflix's loss, an opportunity to eradicate free-riding by foreign giants


As the court upheld SK Broadband's hand in the conflict between Netflix and SK Broadband over 'network fee', the telecommunication industry expects that this ruling will serve as an opportunity to eradicate the 'free ride' of large global CPs (content providers) in Korea.

On the 25th, the Seoul Central District Court ruled that the 20th Civil Settlement Agreement (Chief Judge Kim Hyung-Seok) lost the plaintiff's lawsuit against SK Broadband by Netflix Service Korea, a Korean corporation of Netflix, against SK Broadband.

The court rejected the part in Netflix's claim asking to confirm that there was no obligation to negotiate and rejected the part asking to confirm that it was not obligated to provide the network usage fee.

SK Broadband believes that the court indirectly acknowledged Netflix's obligation to pay network fees, although the court did not explicitly mention that Netflix's request for confirmation that it was not obligated to pay network fees was rejected.

SK Broadband issued a statement on the same day, saying, We welcome the reasonable judgment of the court. We will continue to provide the best service to the public and CPs at home and abroad through the advancement of the Internet network.

In response to this, Netflix said, Even after the Seoul Central District Court's decision to confirm the absence of debt, Netflix will continue to cooperate with domestic ISPs (internet providers) for common consumers. I will.

As the court did not mention a direct judgment on the cost of using the network, it seems that it will decide whether to appeal by reviewing the legal principles.

The telecommunication industry is in an atmosphere of positive evaluation of the ruling, believing that it will have a basis for demanding network usage fees from overseas CPs that have entered the domestic market according to the result of this ruling.

Since Netflix entered the domestic market in 2018, the number of subscribers has grown rapidly and traffic has skyrocketed. As a result of the government's analysis of domestic traffic in the fourth quarter of last year, Netflix accounted for 4.8% of the total traffic, ranking second after Google (25.9%).

Telecommunication companies have argued that it is unfair for them to fully bear the cost of network expansion in a situation where traffic is rapidly increasing.

The problem of reverse discrimination with domestic CPs such as Naver and Kakao, which is paying for network use, has also been pointed out.

According to the ruling, KT and LG U+, which have already formed partnerships with Netflix, are expected to be able to separately calculate network usage fees or change the terms of the contract to their advantage when renewing the contract. In the future, telecommunication companies will be able to have a basis for demanding network usage fees from overseas CPs such as Disney Plus and Amazon Prime, which are about to enter the domestic market, as well as Google and YouTube.

An official from the telecommunication industry pointed out, This is a case of acknowledging the obligation to pay network usage fees to global CPs, where domestic traffic and users are rapidly increasing.

Another official said, I think the key to this trial was who will bear the costs incurred as global operators expand their services. The court ruling seems to have decided that those who benefit from the expansion of services should also bear the costs.

Although Netflix lost today in the first trial regarding the network usage fee filed against SK Broadband, a clear judgment regarding the network fee itself, which received the most attention in this trial, is missing, so the controversy is likely to continue in the future.

On the 25th, the 20th Civil Agreement of the Seoul Central District Court (Chief Judge Kim Hyung-Seok) ruled on the network usage fee that in accordance with the principle of freedom of contract, whether to conclude a contract and what kind of price to pay is a matter to be decided by the negotiation of the parties.

Initially, Netflix filed a debt-free lawsuit to determine whether SK Broadband was obligated to pay network usage fees.

This was not simply a matter between the two companies but attracted a lot of attention in that the court sought a judgment on the dispute over network usage fees, which had been fiercely contested between Internet Service Providers (ISPs) and Content Providers (CPs).

As a result of this trial, the relationship between CPs such as Naver and Kakao and ISPs such as KT and LGU+ could be greatly affected. In the case of Naver, it is said that the annual network usage fee paid to ISPs exceeds 100 billion won. However, Netflix, a foreign company, has refused to pay the network usage fee.

In a court battle that lasted for over two years, it was argued that the network fee violates the principle of net neutrality, which forbids discrimination against all content, and that the responsibility for transmission rests with the ISP.

On the other hand, SK Broadband countered with the logic that network use is basically paid, and CPs are customers, so they have to bear the cost of using the network. However, the court of the first instance judged that it is not a matter for the court to be involved in whether to do it or not to do it, and this is what brought this issue back to the beginning.

Even after losing, Netflix did not give up its original claim.

In a statement after the ruling, Netflix said, ISPs are ignoring their roles and responsibilities for demanding compensation from CPs other than individual users who are already paying Internet access fees for content delivery. Any court or government in the world There is no example of an institution forcing the CP to pay the 'network fee' to the ISP," he said.

Netflix has not yet decided whether to appeal

If the court of the first instance accepts this ruling, the issue of network usage fee is expected to pass to the government again.

SK Broadband filed a financial application for arbitration with the Korea Communications Commission in November 2019 after experiencing difficulties in negotiating network usage fees with Netflix. However, in April of the following year, due to the filing of a lawsuit by Netflix, the financial process was suspended for over two years.

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