April 15, 2024

Twitch closes in South Korea: a reminder of why we fight for net neutrality

By Harold Feld and Nicholas García
January 17, 2024

The Federal Communications Commission is finally taking action to reinstate net neutrality rules for broadband Internet service. Net neutrality is the principle that the company that connects you to the Internet cannot control what you do on the Internet. This battle to protect a free and open Internet has been going on for a long time, and amid the FCC’s most recent proceeding on the matter, we’re also getting an example from abroad of why those rules are so important.

Recently, Twitch, the popular interactive live streaming website, announced that due to the cost of “cancellation fees” it would close its service in South Korea at the end of February 2024. These fees are due to what is called “ the sender network pays.” ” rules, and are a prime example of the risk consumers in the US face if Internet service providers start charging termination fees and access charges. Net neutrality rules would prevent these types of charges, and South Korea is proof that there is a real hunger among broadband providers to carry out this type of extortion, even if it means eliminating some services entirely. . As Twitch CEO Dan Clancy explained the announcement:

Ultimately, the cost of operating Twitch in Korea is prohibitively high and we have spent significant effort working to reduce these costs so we can find a way for the Twitch business to remain in Korea. First, we experimented with a peer-to-peer model for source quality. Next, we set the source quality to a maximum of 720p. While we have reduced costs through these efforts, our network rates in Korea are still 10 times more expensive than in most other countries. Twitch has been operating in Korea at significant losses and, unfortunately, there is no path forward for our business to operate more sustainably in that country.

South Korea offers an important natural experiment in what happens when broadband providers are allowed to charge for access to content providers like Twitch.

So what exactly happened here? In South Korea, ISPs persuaded the telecommunications regulator to adopt “sender network pays” rules. Under this regime, networks charge fees for receiving (“terminating”) traffic. Large content providers, such as video distributors like Netflix, have asymmetric traffic flows: they send much more traffic than they receive. Particularly in South Korea, where traffic for these services originates outside the country, South Korean ISPs anticipated significant windfalls by charging for termination of traffic to their customers, much of it coming from foreign companies.

Instead, what happened provided an object lesson in the danger of allowing ISPs to charge access fees. Large content providers quickly began trying to game the system by splitting content across multiple networks to avoid large asymmetric transfers from one network to another. As a result, South Koreans generally saw a degradation in performance when the law went into effect. For several years, South Korea’s Parliament has attempted to draft new laws to force content providers to guarantee quality of service and pay higher rates, without notable success. Meanwhile, local content providers that cannot split their content have seen a dramatic increase in the cost of producing and delivering content, which they have passed on to the Korean people. While larger providers, such as Netflix, have been able to negotiate deals with South Korea’s three broadband providers to reduce costs, other providers have not, including Twitch.

If even a competitor as well-funded as Twitch (now owned by Amazon) is driven out of the market, certainly no smaller provider will survive. Unless, of course, the ISP gatekeeper decides to make a deal. But even then, Twitch makes investment decisions based on profitability. The question is not whether Amazon could “afford” to pay the fees in some abstract sense. Markets don’t work that way. Companies make decisions based on whether they see enough value in offering the service. When Twitch saw no path to profitability, it did the logical thing and exited the market. This does not mean, of course, that all companies will exit. Netflix, whose business depends entirely on reaching end users, was sufficiently motivated and popular enough among subscribers to be able to negotiate a better deal with South Korean ISPs.

This situation – ISPs act as gatekeepers, choosing which content providers will reach their customers without taking their customers’ preferences into account – is precisely the worst-case scenario predicted by net neutrality advocates in the US and by the FCC itself under Chairman Tom Wheeler in the original Open Internet Order, which the FCC, under later Chairman Ajit Pai, claimed would never happen. But, as we can clearly see from the demise of Twitch in South Korea, ISPs are hungry for these types of deals, and the incentives only increase for large American ISPs like Comcast, which are also large media companies, with their own content you like to promote.
That’s one of the main reasons why the ongoing proceeding to reclassify broadband Internet service under Title II of the Communications Act is so important. The Title II classification is what will allow network neutrality rules to be established. Title II means recognizing that in our digital society reliable, high-speed broadband Internet is an essential service, like water or electricity, and that net neutrality rules should exist, just like the rules that made The telephone system was so reliable, to ensure that everyone could communicate over the Internet on equal terms. If that’s important to you, you can participate right now; The FCC is still accepting public comments on proposed net neutrality rules, and you can add your voice to call for a free and open Internet.

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