Myths and Truths: Setting the record straight on the South Korea Case

South Korea’s market for digital content is one of the most attractive in the world. Its leadership in fixing the relationship between telco operators and large traffic generators is subjected to a campaign of misinformation and discredit in Europe.

Juan Luis Redondo Maíllo

Juan Luis Redondo Maíllo

Reading time: 6 min

Myths all around: Large Traffic Generators misrepresent South Korea case

In recent months there has been an animated debate about the fair contribution of large traffic generators (LTGs) to the sustainability of network investment. Opponents of such a fair contribution frequently point to the case of South Korea as a cautionary tale. They argue that the initiative had negative consequences for the Korean market and consumers and that, hence, Europe should learn from Korea’s alleged mistakes and abandon the proposal. None of these discussions featured Korean telecom operators, the Korean regulator, or the Korean government.

Truth: South Korea is a leader in digital development

Korean operators recently published a report in English, entitled “Myths and Truths about the IP Interconnection system”, which attempts to dismantle the falsehoods spread in Europe and the United States on this subject. It is critical of the claims made in reports prepared by Analysis Mason and WIK-Consult. The article from the Korean Telecommunications Operators Association accuses these reports of misrepresenting the facts.

Some assessments are particularly striking, like the claim that the decisions taken by the Korean regulator had a negative effect on the market of local content providers, leading many of them to disappear. Rather, South Korea has been leading all digital development indexes for years. The Korean Telecommunications Operators Association’s report provides details:

  • Korea is a very dynamic market with more local platform providers entering the market than any other country and competing with Big Tech.
  • According to UN’s World Intellectual Property Organization (WIPO)’s annual Global Innovation Index survey, South Korea is a highly innovative country, ranking 6th in the world and 1st in Asia.
  • Korea ranks first in the world in seven indicators: patent applications to GDP, PCT (Patent Cooperation Treaty, International patent applications) to GDP, design applications to GDP, researchers to population, business researchers to population, government online services, and e-government online participation.
  • Korean ICT companies have quickly adapted to the platform era, and unlike major countries, there are competitive local platforms for search, messaging, e-commerce, etc.
  • Korean Platforms are entering the global market by focusing on areas that are not dominated by the existing big techs in Korea.
  • Korea’s content diversity is currently at an all-time high. Unique stories and videos like Parasite and Squid Games are highly rated by both Korean and international audiences.
  •  If online content diversity could be measured by the number of CAP operators, Korea has more diversity than any other country in the world, with both local and foreign operators competing.

The difference between the arguments that network fees hamper content diversity and the reality of South Korea’s popular and sprawling content ecosystem is striking.

More Truth: The speed of broadband is increasing and content providers rush to South Korea

The description of the relationship between operators and content providers is also often flawed. Operators are repeatedly accused of damaging the quality of services offered to Korean citizens by refusing to install caches (CDNs) in their networks or to offer direct connection to these providers. Operators’ response, however obvious, is interesting:

  • This has been described as a loss for Korean stakeholders. Need to distinguish whether the cache was not installed because the ISPs in Korea refused to install it or because the Global content providers (CPs) refused to settle.
  • Korean ISPs are willing to install cache servers in their networks. This may be allowed on the condition that CPs pay for the use of the network. Installing cache servers in the network does not mean that there are no costs involved.
  • The South Korean government measures and publishes the quality of high-speed internet every year, and the speed of broadband is increasing every year.
  • Therefore, there have been no incidents of domestic CPs moving their servers overseas due to the burden of network usage fees since the change in the interconnection system. Rather, there is only evidence that services from overseas OTT operators such as Disney and Apple TV have rushed to South Korea.

Interconnection: creating a healthy internet ecosystem in a two-sided market

All companies incur operating costs when providing services. And all companies would like to reduce these costs, or they would like them to be free, be it energy, or any other service they must contract with another company. The idea that a company’s refusal to provide a service to another company free of charge would mean irreparable harm to end-consumers has no merit from an economic point of view. Rather, it reflects that these large companies have no interest in reaching agreements, as they can rely on their extraordinary market power in order to use these services free of charge.

The last noteworthy aspect is the article’s effort to shed some light on the tremendous confusion created about the interconnection market. It states the obvious: interconnection is a market of operators. When you legislate on interconnection, you legislate on the relationship between operators.  Problems arise when certain agents that are not operators, but content providers, want to access the interconnection market as if they were operators. The distortion this introduced in the market forced the Korean regulator to clarify that content providers are not operators, but Internet users. The regulator classifies content providers as massive Internet users. And as users they must pay for Internet access just like any other user. The report is particularly critical of the confusion that the WIK-Consult report creates on this aspect. In the words of the Korean operators:

  • WIK’s representation that large ISPs have forced CAPs to pay for their networks is incorrect. Interconnection fee payments are only between ISPs that are registered by the law and have telecommunications networks.
  • Large CAPs pay ISPs for Internet-leased line services. This is a transaction in which end-users, enterprise users, and CAPs of all sizes pay ISPs for connectivity to the public Internet network. The rate level is negotiated autonomously between the CAP and the ISP.

The Korean operators’ report ends with a sentence that sums up the state of the debate in Korea:

  • In South Korea, the price of high-speed Internet is very low, and the speed of broadband Internet is one of the highest in the world. This is because the Internet is a two-sided market, and a healthy Internet ecosystem has been established in which end users and CPs fairly share the costs of network investment. The interconnection system is considered the minimum necessary to maintain a healthy internet ecosystem in South Korea.

There are several potential solutions for this challenge but, what is important is to understand that this is a problem that must be addressed, and a solution must be found. Doing nothing is not an option. And reading the Korean Telecommunications Operators Association’s report is a must to better understand the situation in the South Korean market and use it to inform the European debate in a fact-based manner.


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