The Peninsula

The role of Korean utilities in shaping the tech market

What Happened

• In 2019, Korean Internet Service Provider (ISP) SK Broadband claimed that heavy data usage by the U.S. streaming service Netflix posed a major financial burden and sought government arbitration.
• Local online platforms have also complained of reverse discrimination as domestic platforms pay substantially more in network usage fees than foreign ones.
• In response to a new law calling for foreign streaming services to compensate ISPs, Netflix filed an unsuccessful lawsuit against SK Broadband.

Implications: Broadband providers can influence competition in Korea’s digital platform market. The courts upheld the right of domestic internet providers to charge additional fees for heavy data usage, confirming their capacity to influence the cost of content platform companies growing a local userbase. Notably, Google may not be liable for similar increases in fees because it already struck agreements with Korean carriers to build additional servers that could manage the high data usage on its streaming platform YouTube. Netflix had established similar agreements with ISPs to install additional servers in lieu of network fee payments – but had not built out this new capacity ahead of the recent ruling. The court’s decision signals challenges for future foreign content platforms looking to grow their userbase in South Korea without closely collaborating with these service providers.

Context: The Korean government’s regulatory measures sometimes carry protectionist undertones. For instance, regulators asked Spotify not to offer free versions of their platform to Korean consumers. This measure may be tied with regulators hoping to encourage the growth of local music streaming services such as Kakao’s Melon and KT’s Genie Music. The government is also not outright opposed to the entry of these foreign digital companies as they offer local content creators an opportunity to reach a wider global audience through these platforms.

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

Korea View was edited by Yong Kwon with the help of Sean Blanco, Marina Dickson, and Jina Park. Picture of the flickr account of Tennessee Wanderer