KCC focuses on global IT players pressuring local network providers

In August, the Seoul Administrative Court ruled in favor of Facebook in a battle against the Korea Communications Commission (KCC), the country’s telecommunications industry regulator. The KCC was ordered to cancel a 396-million-won ($332,000) fine on the social media company levied for the inconvenience caused to customers for routing their traffic through overseas servers. The company had decided to direct traffic in that way because of KT’s high rates for caching on its servers.

On Nov. 12, SK Broadband requested the KCC to arbitrate its own dispute against Netflix on data traffic costs. The two companies had engaged in talks over the matter numerous times in the past year but failed to reach an agreement.

These two incidents are representative cases in which the government stepped in to mediate disputes between media companies and internet service providers. Another common factor was that the network fee contract between content providers and internet service providers triggered the fight.

In recent years with the rise of traffic for global services like YouTube and Netflix, complaints have been on the rise from telecommunications companies saying massive content providers are not taking responsibility for network quality.

The KCC disclosed a set of guidelines regarding network fees on Thursday and held a public hearing to receive opinions from representatives of various stakeholders on the plan, which is not yet completely finalized.

“We respect the private contract between business operators and believe it’s advisable that issues between them are autonomously resolved through the market mechanism,” the regulator explained.

“But in limited situations where the market mechanism does not properly function, the government does need to step in,” it added as to why the guidelines were devised.

The KCC especially focused on relations between global content providers and domestic mobile carriers and between local content providers and mobile carriers.

“Small-sized [local] content providers often don’t have the authority to change terms on a standardized contract suggested by mobile carriers,” said Ban Sang-kwon, a KCC director for consumer policy. “But on the contrary, when global content providers suggest their standardized contract, it’s not easy for local telecommunications providers to ask for change.”

In other words, there’s a “relative power dynamic,” as Ban puts it, where Korean telecommunications operators lord over smaller, local content providers, while they have to submit to the global companies.

At a time when global content providers like Netflix and YouTube are coming to take up a massive portion of Korea’s media market, they are an unavoidable reality for the mobile carriers.

“Local content providers signing data traffic contracts with less favorable terms compared to global content providers not only face an increase in financial costs, but may also have to weaken their offerings,” said Ban.

The guidelines suggested Thursday include clauses on principles and procedures of data traffic contracts and user protection and defined which actions can be labeled “unfair practices.” They also laid out details on which contracts can be seen as wrongfully restricting the rights of a counterparty.

Among them are forcing customers to accept certain contract terms using business leverage or delaying or refusing to sign a proposed contract citing unreasonable grounds.

Using other contracts signed as references for pricing was prohibited. But the KCC made it clear that contracts made in the course of strategic partnerships or long-term deals would not be subject to the rule.

If the content provider can expect a certain measure to negatively affect a user, it should provide relevant information to the internet service provider. This is the 11th clause.

Some local players in the industry are not happy with the announced guidelines.

“The 11th clause that obligates informing mobile carriers in case of traffic explosions adds even more duty for local content providers - it aggravates the ‘reverse discrimination,’” said an anonymous source at one local content provider.

“There’s a possibility that telecommunications companies would use it to their advantage when signing contracts with local content providers.”

Mobile carriers are raising questions too, saying the guidelines are vaguer than what they had expected.

“We hope there would be a practical method to prevent major content providers from in and outside the country from engaging in unfair practices, but what we’re seeing is not that concrete, so I don’t know how effective it will be,” said a telecom source.

What adds to that confusion is the fact that the KCC’s guidelines will not have legal force.

On the matter, the KCC’s Ban admitted the lack of legal obligation but added the guidelines can create grounds for arbitrating disputes or a basis for interpreting relevant laws.

“The core intention is to give the market a signal,” he said. “If needed, it may also be used as the basis to legislate laws in the future.”

BY KIM KYUNG-JIN [song.kyoungson@joongang.co.kr]