Will Facebook win court battle over network usage fee?

After a yearlong legal battle over the government’s decision to impose a financial penalty on Facebook Korea for a massive network cutoff in 2017, South Korea’s court will deliver a verdict this week to determine whether the punitive measure is excessive or not.

The Seoul Administrative Court is scheduled to deliver its ruling on Thursday on the lawsuit filed by Facebook Korea in March last year, after the Korea Communication Commission imposed a 396 million won ($367,000) fine on Facebook for delaying access to the country’s major internet services.

While Facebook asserted that it was unlawfully accused of something that the company had not anticipated, the KCC countered that Facebook deliberately slowed down SK Broadband’s and LG Uplus’ network connection speeds to gain leverage in network usage fee negotiations.

Given the government’s persistent pressure on Facebook to share the burden for using telecom network services in the same way as its local competitors, the upcoming verdict would constitute a watershed moment for global tech giants operating here, industry watchers said.

“It is not about penalties. It’s more about the decision’s impact on Facebook’s global business,” said an industry source familiar with the matter. “Facebook’s worst nightmare is that the court’s decision would set a bad precedent for its future business in Korea and abroad.”

Over the past few decades, global tech giants -- such as Facebook, YouTube, and Netflix -- have boosted their market presence in Korea. Mobile subscribers have used massive amounts of data consuming popular services, such as social networking and video sharing.

The tech giants’ growing popularity has prompted local internet companies such as Naver and Kakao to raise concerns over “unfair competition.” They point out that government regulations require them to pay for using telecommunications providers’ services, but their global competitors are not.

Facebook Korea, which agreed to pay SK Broadband for network usage fees in January, has said the issue should be better resolved without government interference. It also warned against the KCC’s attempt to set a guideline for network usage fees, describing it as “excessive regulation.”

“What was supposed to be discussed among private companies was put in the hands of the government. That’s why we see things go ugly,” Facebook Korea Vice President Park Dae-sung said during a meeting with a few media outlets last week.

“We are paying net usage fees to SK Broadband, and negotiations with KT and LG Uplus are going well … (If the court were to rule against Facebook), it would create a bad image for South Korea’ status as an IT powerhouse.”

Describing its battle with Facebook as a high-profile case with global impact, the KCC has pledged to fight the case until the end. The media regulator said it would file an appeal if it is defeated in Thursday’s ruling.

“Restricting unfair policy was one of the biggest legacies for us,” former KCC chief Lee Hyo-seong said last month when he announced his resignation during a meeting with reporters. “I need your utmost attention on the issue.”

The issue dates back to 2016, when Korea’s Ministry of Science and ICT changed the country’s network-sharing regulations, causing payment conflicts among local internet service providers and Facebook.

Facebook had been paying KT for a cache server, which saves online content locally in temporary storage, to grant Korean users a faster connection speed to the social network. Access is slower when directly connecting to Facebook’s overseas server in Hong Kong.

Until 2016 LG and SK subscribers had been routed to the KT server, with the firms paying KT for the connection, but after rules on network sharing changed, the two firms asked Facebook to use their own separate servers. When Facebook failed to agree a price with them, it cut of access to the KT server without notice.

Facebook later said it was rerouted to the slower Hong Kong connection, but added it hadn’t anticipated such inconvenience among users.

With SK’s user traffic redirected to Hong Kong, it strained SK’s network, causing its connections to Facebook to take up to 4.5 times longer compared to before the rerouting. For LG Uplus subscribers, the connection speed became 2.4 times slower.

By Yeo Jun-suk (jasonyeo@heraldcorp.com)