What is “network usage fee”? : What will European Commission’s grand plan to “charge” the internet do to Asia?
June 7, 2022, 10:30~11:30 pm KST
The internet has been both a great liberator and a great equalizer by giving powerless individuals the same power of information and publicity as big businesses and governments. Such freedom was made financially possible by the net neutrality rule that ISPs are prohibited from charging for data delivery to their customers, or in another configuration, the rule that data delivery cannot be performed or prioritized for payment or for any other reason of content, application, sender, or receiver. All users of the internet were in principle charged only the cost of accessing the internet by ISPs at radically affordable prices compared to postage and telephone and in return provided with the full connectivity, i.e., communication with all available nodes on the world’s net, no matter where the nodes are and no matter where the user’s entry point is. This radical removal of ISPs as the gatekeepers as FCC and BEREC have required is what enabled the civilizational significance of the internet, i.e., people could share virtually unlimited volumes of information with one another without having to worry about costs of communication and therefore at scales never imaginable in the previous era, contributing to democracy and equal economic opportunity.
In Korea, where the existing inter-ISP sender pays rule has increased internet access fees several times above Europe/US, an attempt to “charge the internet” has been brewing where the users of the internet will be required by law to pay for data delivery (not internet access fees) and is threatening the life of the internet as we know it. A similar attempt to obligate all content providers to enter into “partnership” with local ISPs failed in February 2021 in the wake of civil society protests there.
However, in May 2022, the European Commission’s leaders abruptly showed support for such plan in line with the European ISPs’ nostalgic plea to return to the postage/telephone age – sending party network pays rule. The European Commission’s recent concern with “disproportionate network usage” by heavy users is self-defeating as ISPs are the heaviest “users” of the network themselves as they are pulling the traffic from all over the world on behalf of their customers.
At this event, participants will learn about the relationship between net neutrality and “network usage fee” and why the two collide. Participants will learn about how the increasing network usage can be absorbed and paid for by the world’s network under the current regime and why it is scientifically and economically sound. The technical concepts such as peering, transit, paid peering, internet access fees, mobile data caps, bill & keep, sending party network pays rule, etc., will be explained to inform and enrich the discussion.
Moderator: Kyung Sin (“KS”) Park, Professor, Korea University/ Executive Director, Open Net Association
Alissa Starzak, vice President, Global Head of Public Policy, Cloudflare
Damar Juniarto, Executive Director, Southeast Asian Freedom of Expression Network
Thomas Volmer, Director, Global Content Delivery Policy, Netflix
Christoph Mertens, Senior Economist, Bundesnetzagentur, Germany, and BEREC(Body of European Regulators for Electronic Communications).
KS Park: Internet has been a unitary product. Wherever you buy internet, you get exactly the same thing: connectivity to all other people who bought internet. If you are charged a fee once to become part of the Internet, you were not charged again for either sending or receiving data. Before Internet, we had to pay USD 100 to talk to even one person over the phone for 1 hour. On internet, we can talk to hundreds of people with video for hours and hours or have my video viewed by billions of people, both practically for free. This has allowed humanity freedom of speech 2.0 whereby powerless people everywhere were afforded powerful tools of mass communication comparable to television and newspaper, and thereby contributed to economic equality and democratization. This was made possible by the Internet architecture where all routers were bound by TCP/IP whereby each router delivers without any condition or monetary charge to its neighboring router closer to the destination of the data packet. This architecture was supported by law called net neutrality lest ISPs do not abuse their terminating monopoly in the last mile network. However, there is a proposal to charge the Internet on the horizon where content providers will be required to pay for ‘sending’ data to these last mile ISPs. This sender-pay rule is already being implemented in Korea among ISPs and it is already affecting how content providers are paying to send the data to Korean ISPs’ users. We will discuss today its ramifications around the world.
Damar Juniarto (Southeast Asian Freedom of Expression Network): Indonesia is dominated by the monopoly of mobile operators especially in eastern part of Indonesia broken into 12 zones where people pay different amounts for mobile internet access depending on which zone. Telcos are charging internet access fees depending on content. For instance, users must pay $10 for Youtube quota of 20G and $20 for unlimited Youtube quota. This means that if you don’t have money you cannot use Youtube. Although this is not a sender pay rule, this does violate net neutrality but the government has refused to enforce net neutrality.
Also early in 2022, the government had planned to require all content providers to enter into “partnership” with local Indonesian telcos to distribute content within Indonesia, but after Open Net and SAFEnet publicly protested, the government withdraw the plan. Such “partnership” could have become a tool to charge “network usage fee” on all content providers.
Thomas Volmer (Netflix) : Netflix has made contribution to the network investment by making data available around the world and using compressed-coding to allow connectivity. Despite a call for “fair share”, much contribution from CPs is already made to the network infrastructure.
We use the internet to make data available to everybody but the mandatory “traffic charges”, “network usage fee” will have specific perverse effects because we will have to enter into contracts with individual ISPs. The symbiotic relationship between content and connectivity will be broken where the network becomes a “bridge to nowhere” wherever contracts between content provider and local ISP fail due to the requirement of “network usage fee”.
Mandated payment to ISPs will reverses logic of internet because ISP can now chooses what is accessed by its customers. Its requirement of bilateral agreement with local ISPs will send the world back to telephony age and will disadvantage SME CPs who cannot negotiate good terms with local ISPs. If mandated ‘network usage’ fee is instituted, content providers will have incentives to connect outside the country, causing latency for domestic users.
Proponents are saying that ‘fair share’ will apply only to big techs. But it is undoable because use of cloud services and multiple paths makes it impossible to check origins. This means that ‘fair share’ deal will be internet tax suppressing traffic everywhere.
Alissa Starzak (Cloudflare): CPs put content online and make it available to everybody so that everyone can access any content online. The sender pay rule undermines the structure of the global network where everyone is making efforts to make internet faster by bringing contents closer to destinations. The Internet worked so well because of no payment was charged for having data cross each other’s network. The sender pay proposal will hurt everybody. The Korean government policy forces Korean content to be accessed outside Korea. The speed is already 183% slower for content served in Korea compared to content served outside.
ISPs end up deciding what content is available to its users domestically or from overseas connection or available at all. Instead of Internet defined unitarily as the full connectivity to everyone else around the world, the definition changes according to ISP’s decisions. These legislative proposals encourage payment, not efficiency.
Christoph Mertens (BEREC): Please review the latest Wik Institute study titled “comparative conditions of transit and peering market, implications for european digital sovereignty” which followed the 2017 BEREC study on net neutrality and IP interconnection. The new study found that IP interconnection is competitive, regulatory intervention not needed, that direct bilateral peering increased a lot, and that investment by CPs via subsea cables + CDN increased a lot, and therefore that the value added to the network infrastructure has shifted its center from ISPs to CPs. So much network infrastructure is made available that provision of internet access became like a commodity (goods made of similar qualitites everywhere).
Now, The significant investment by CPs did not change ISPs’ access monopoly for their end users. Bill and Keep are still the dominating way of settling data delivery fees, the charging mechanism for internet, as opposed to that of telephone. Changing to the sender pay rule will allow ISPs to exploit the access monopoly, and then we will need new regulation to prevent exploitation of access monopoly.
The proposals for sender pay rule are based on the fact that traffic has increased recently. However, it is customers who generate traffic as CPs send data only in response to customers’ requests.
Also, “fair share” seems to depend on the fact that some CPs generate more income than other CPs. However, one CP being more successful than other CPs when they are using the same internet service or the service of the same cost, cannot be an economics-based reason for paying more.
Other proponents seem to point the dominance of some CPs. However, economists find no competition issue in the backbone where data is supplied to ISPs. Transit cost has dropped constantly in the backbone.
In the last mile (access) network, is the amount of traffic really driving the cost up? Is the maintenance cost of it traffic-sensitive? We do not find that. Whether I do nothing with my internet service or watch Netflix 24/7, the cost is the same on ISPs.
In that setting, will the extra payment to ISPs based on ‘fair share’ really go into building more backbone or access network? Or will it go to ISPs’ shareholders?
Already, there are several public programs contributing to the building of high-speed network infrastructure. Do we need more revenues for ISPs?
Some sender-pay proponents mention “free-riding” but it is economically very unlikely in a competitive condition. All the research show that content-providing industry is very competitive.
Other proponents mention “2-sided market” theory but that does not mean anything to the debate because the sender payments can be welfare-enhancing or welfare-reducing. If “costs are not covered” as ISPs say, which the research shows to the contrary, the 2-sided market theory allows that customers are entitled to discounts if there is over-recovery of costs.