Broadband Network Usage Fees: Empirical and Theoretical Analysis Versus Observed Broadband Investment and Content Development. Insight from South Korea.

Abstract

The South Korea telecom services market reports annual revenues of $22 billion. The country is noted for market-based network usage fees in which content providers (both domestic and foreign) negotiate access to broadband networks. The magnitude and volume of such fees are not public, but news reports suggest they amount to less than 1 percent of the total market revenue. This paper investigates the size and volume of the network usage fee regime and impacts on related broadband and content markets.

As usage fees have been place for some years in South Korea, this paper reviews the development of the Korean broadband and content markets and whether changes can be observed  to the industry structure, revenue, market size, concentration, penetration, technological development, and other variables after the introduction of usage fees.

Results are expected to be correlative, not causative. Theoretical modeling is explored in parallel to explore whether and how results could change under different circumstances.

A conceptual framework suggests expected relationship between variables and defines objectives for the research process. In this respect, the authors hypothesize that network usage fees have a neutral effect on the market, or at best positive. Alternative scenarios are explored, for example the refusal to supply by content providers and increase of broadband prices to consumers should content providers refuse to negotiate or pay for network usage. Note that broadband investment per capita remains high while broadband provider's average revenue per user has shrunk by almost a third in the last decade.

The paper offers new, original, and valuable data and analysis for policy scholars including an explanation of the official Korean broadband policy, bibliography of Korean sources of information on usage fees translated and summarized for an English-speaking audience, and data on broadband quality and the Korean content market. The paper provides an extensive literature review on network usage fees.

The paper is timely and significant as many nations consider whether and how to engage in such regimes and whether market-based or regulated approaches are superior. Proceedings have been undertaken or underway in USA, European Union, Brazil, among other regions.

Keywords: network usage fee, broadband, korea, content, policy, regulation