South Korea takes the next step in global broadband leadership with the Network Free Ride Prevention Act

Strand Consult has followed the development of South Korea for more than two decades. In the early 2000s Strand Consult demonstrated how South Korea, not Japan as many believed, made pioneering strides in mobile wireless policy, business models, technology, and ecosystem development. This trend has continued in last two decades with milestones including but not limited to next generation broadband deployment, broadband adoption, and stimulation and commercialization of local content markets.

Strand Consult’s groundbreaking 2002 report “Korea’s Mobile Market – A window to 3G” described the market transformation that had taken place in South Korea from the American CDMA technology to the European WCDMA technology (Note that Americans at the time still were still using pagers and Palm Pilots). The report described the year 2000 consolidation of the market from 5 to 3 mobile operators which was carried out to enable operators to get scale economies for investment. It also described the service market in Korea and how KTF was successful with its multi-brand strategy. It described how regulators sought to open the market to technological competitors such as Java for service development, thus limiting the abuse of market power by Qualcomm which wanted to leverage its position as purveyor of CDMA technology to de facto use of its BREW platform.

The next chapter of the story is being written as we speak, as South Korea’s policymakers innovate policy to account for the fair use of broadband networks, for which global giants like Google and Netflix want to access for free. Strand Consult chronicles this development in its recent report Netflix v. SK Broadband. The David and Goliath Battle for Broadband Fair Cost Recovery in South Korea. More largely, internet policy watchers worldwide are transfixed by the spectacle of the Network Free Ride Prevention Act in the Committee for Science, Technology, Broadcasting and Communication in South Korea’s National Assembly. It has all the elements addictive drama: strong characters, national conflict, and massively high stakes.

If you want to learn more about South Korea and the Network Free Ride Prevention Act, including an English translation of the bill, order Strand Consult’s report Netflix v. SK Broadband. The David and Goliath Battle for Broadband Fair Cost Recovery in South Korea.

Long term policy development is not always linear. Sometimes nations must take two steps forward and one step back. They may even be derailed by global financial crises. They must also battle powerful forces of transactional activism funded by trillion-dollar corporations which prey upon policymakers through invasive advertising, astroturfing, and intimidation. Getting to be #1 in broadband required that South Korea time and again ignored international criticism and maintained a policy that made sense for South Korea.

The small countries like South Korea that compete with the US, China, Japan, Germany, India, or Brazil do not begin by competing at scale; they must compete with smarts. Moreover they may need to do it in a unique, if not contrarian, way which defies the conventional wisdom of the experts. South Korea faced the post-World War II era with essentially no natural resources, but it transformed  from agrarian nation to global industrial powerhouse in appliances, electronics, chemicals, pharmaceuticals, semiconductors, and other industrial products. Along with its digital economy and connectivity, South Korea has fostered creative industries in cinema, drama, music, fandom, beauty, and fashion which provide the content for its networks and devices.

The policy to be #1 in the world for broadband

South Korea is widely recognized as the world’s leading nation in broadband. It consistently leads in the International Telecommunication Union’s (ITU) scoring for broadband access, use, and skills. Importantly, existing transit fee regimes have not slowed the rate of adoption of fiber to the home (FTTH) subscriptions in South Korea, which have increased for the last three years and now stand at 86.6 percent of total broadband connections, the highest in the Organization for Economic Cooperation and Development (OECD).

South Korea also leads in 5G globally with near complete national coverage by multiple operators and 47 percent adoption, ahead of both China and the US where subscriptions have reached one-third of the population.

South Korea’s broadband success is an important topic among policy researchers globally. While South Korea’s success is the result of an interplay of factors, it can be summarized by government leadership, fierce facilities-based competition, attractive pricing of devices and subscriptions, and urban density. South Korea is not unique in having industrial policy related to the internet and the conceptualization of broadband networks as an input to the information economy, but it appears that South Korean policymakers were and are adept at seizing opportunity to implement policy, for example the privatization of state-run telecom companies and broadband policy promulgation during financial crisis of 2008.

South Korea’s broadband success has also been attributed in part to diffusion theory, a social process in which families, friends and peers encourage technology adoption, for example the role of online gaming as a killer app. In the last two decades, South Korea has remained at the forefront of next generation networks and technology adoption,

The South Korean broadband success story reflects a blend of policy (industrial planning and market freedom), geodemographics, complementary industries, and culture. South Korea executed an ambitious plan to connect the country with broadband beginning in 1994 with the Korean Information Infrastructure project. A partnership between Korea Telcom and the government connected 80 urban centers, government institutions, and a national backbone, followed by buildout to 144 regions with additional private providers joining the effort. In parallel, internet cafes emerged and “internet literacy” education to help spur home adoption with a key application of online banking. In 1999, the government implemented Cyber Korea 21, to accelerate IT development.

However impressive the ubiquity of fiber to the home in South Korea, the country has been a leader in wireless broadband. Two out of three mobile telephone service providers started WCDMA service in December 2003, providing voice, video, and high-speed data service at 2Mbps using mobile handsets.

The Network Free Ride Prevention Act

As such, the South Korea Assembly is right to pursue the Network Free Ride Prevention Act to ensure it remains the world premier broadband nation. Some misunderstand the bill as the government setting fees; there is no such language in the bill. Rather it requires that parties negotiate and come to their own terms for the delivery of traffic. The bill includes requirements for transparency of network use data and billing. The lawmakers expressed unanimity for the goal of making fair, reasonable, transparent, and predictable conditions for network traffic exchange in South Korea.

Many nations seek inspiration from South Korea to explore how they can resolve their own broadband challenges. Around the world, policymakers are grappling with major shortfalls on broadband deployment; the EU has a €300 billion gap.  In the US, the $60 billion broadband subsidy infusion falls short to close the digital divide.

Google has grown large and dominant in part because they have forced a free ride on other’s networks. The US and Japan now propose that Google pay into the Universal Service Fund or be accessed an ad tax to recover the money needed to build and maintain networks. South Korea is by far the most advanced to implement a system that works. 

The Committee should recognize that its proceeding is relevant and justified from a global perspective. Many nations grapple with this very issue including the United Nations International Telecommunications Union. The recent Global Connectivity Report for 2022 for the International Telecommunications Union (ITU) helps enlighten connectivity challenges which are real for developed and emerging countries alike. This report observes the critical role of middle-mile connectivity and the to the urgent need to close the gap of funding, particularly with universal service. ITU recommends that both the base of contributors and the scope of investment to support deployment and adoption need to be broadened. Several options are available to broaden the base of contributors: include identifying new contributors like digital companies, such as those with an e-commerce or other online focus, along with other companies deriving benefits from broadband, multilateral development banks, corporate social responsibility funds, and philanthropic donors. Further contributions could include digital taxes and other regulatory levies.

With the pandemic, broadband is essential. Now many countries believe that technology companies must do more for social responsibility, even contribute financially to universal service funds. An important contribution to South Korea’s economy is that networks receive the funding they need. The Committee is keen to study the economics and business models.

To learn more about South Korea and the Network Free Ride Prevention Act, including an English translation of the bill, order Strand Consult’s report Netflix v. SK Broadband. The David and Goliath Battle for Broadband Fair Cost Recovery in South Korea.