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Internet traffic tax in South Korea: an example for Europe to follow? (Spoiler alert: it didn’t, here’s why)

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The largest incumbent telecommunications operators in Europe are try to revive the idea that tech companies should pay them when they respond to user data requests. In other words, the same consumers who already pay telecom operators to access the Internet would now have to pay a second time for the same content through more expensive streaming subscriptions or cloud services.

This telecom chimera is currently being analyzed by European regulators and politicians. Curiously, in the world, only one country has implemented such a tax on Internet traffic. South Korea started introducing the SPNP (Sending Party Network Pays) concept in 2016 and experts agree that the experiment failed. Consumer prices have risen dramatically, the content offering has become much less diverse, latency is now among the highest in OECD countries, and network investment is declining.

This raises the question: is this really the model of regulation that Europe wants?

SPNP is the technical name for what we call an Internet traffic tax. This means that the party that sends traffic over the Internet to an end user (a streaming platform like Netflix or Spotify for example) is obligated to pay a fee to that user’s Internet Service Provider (ISP) – such as an operator. telecommunications – in order for the traffic to actually be routed.

In 2016, South Korea introduced an SPNP model, requiring ISPs to charge fees for the data traffic they receive from each other. Four years later, Korean telecom operators have sought to extend the SPNP model to major domestic and foreign content and application providers (eg, Google, Facebook, and Netflix). Although not yet a regulatory mandate, Korean ISPs have successfully forced Korean content and application providers to pay network fees for the Internet traffic they send over the networks of ISP in the country in response to user requests with approval from regulators. Foreign companies have resisted these efforts, but legislation is currently being considered in Korea that would make such payments mandatory.

The introduction of this SPNP had major consequences, both for South Korean consumers and for their national Internet ecosystem as a whole.

Various studies have shown that consumer prices increase considerably since 2016. South Korea is now among the countries where consumers pay highest rates for mobile data worldwide. To give an idea, the average cost of 1 GB of mobile data in South Korea is over €12, while the European average (all operators combined) is only €1.85. Consumer prices for mobile data in South Korea are also seven times higher than the European average and more than twice as high as in Finland, the EU country with the highest tariffs (€5.90 per GB).

In addition to much more expensive data plans, South Korean consumers have also seen the price of their Netflix subscription increase by 12.5% during the last years. This is a direct result of an ongoing legal dispute between the streaming platform and Korean ISP SK Broadband. Additionally, South Korea now has the worst latency rates of any OECD country, with latency being the time it takes for data to travel from one place to another – the amount of delay that you meet in a video call for example.

Indeed, latency has only gotten worse since South Korea implemented the SPNP model, starting at around 120 milliseconds in 2018 and reaching nearly 160 milliseconds just two years later, as reported. noted the OECD in a recent study. On the other hand, European countries have shown a trend of decreasing latency in recent years. Denmark, for example, went from 60 milliseconds to around 50 milliseconds.

Along with these shortcomings that consumers encounter directly, the SPNP model also impacts them indirectly, as it creates a less competitive market and reduces the incentive to invest in the network.

As a direct result of pressure to pay high network fees to ISPs, many South Korean and foreign content providers have degraded services that they supply to Korean customers or have simply decided to get out of the market. For the same reason, smaller Korean content providers and startups are finding it increasingly difficult to enter the market or expand their market share. This has significantly reduced competition in South Korea and led to sharp declines in the level of service provided and content offering available to consumers.

As if that were not enough, the South Korean market is also experiencing a structural crisis decrease in investment in the network, by both local and foreign companies. Some fear that major infrastructure projects such as Google’s apricot and The Facebook Echo submarine cables can now completely bypass South Korea for these reasons. Surprisingly perhaps, the deployment of 5G networks in South Korea is also to slow downeven if the country is perceived as a champion of mobile technology by many foreigners.

The situation in South Korea speaks for itself. A tax on Internet traffic removes the incentive to invest in high-speed network infrastructure. What more than this real experience can explain how harmful the introduction of the SPNP model would be for Europe?

If the European Union really aims to achieve its ambitions 2030 digital goalsa Sending Party Network Country model is definitely the last thing he needs.

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