SK, Netflix settle yearslong legal battle over net usage fees, vow to work together

SK Broadband Co., a major South Korean internet service provider, said Monday that it will end a yearslong legal battle over network usage fees against US streaming giant Netflix.

“We agreed to withdraw all disputes in the interests of the greater success of both companies, reflecting the common intention of putting values on customers first,” an SK Broadband official said without giving details of the agreement. “But our position on the necessity of network usage fees remains unchanged.”

The latest breakthrough comes almost three years after the two companies clashed over network usage fees, a thorny issue globally amid massive traffic triggered by streaming services like Netflix and YouTube.

For years, SK Broadband had asked Netflix to pay network usage fees, accusing the US firm of “free-riding” on its network, while Netflix refused to do so, citing net neutrality, which refers to the principle that internet service providers must treat all international communications equally regardless of content, platform or type of equipment.

The dispute also gained global attention as it was a battle over who is responsible for maintaining network quality. Launching the legal fight three years ago, SK Broadband claimed the amount of traffic generated by Netflix surged about 24 times from 50 gigabits per second in May 2018 to 1,200 Gbps in September 2021 amid the popularity of a slew of hit series.

Netflix also fought back by filing a suit against the Korean firm, asking a local court to confirm that it has no obligation to pay network usage fees.

In June 2021, the Seoul Central District Court ruled in favor of the Korean company, saying that it is "reasonable" for Netflix to provide something in return for the service. Netflix appealed against the decision a month after, arguing that the ruling may “topple the global internet ecosystem,” and the lawsuit had been pending.

Local industry sources and market watchers evaluate the sudden end of the legal battle as "somewhat expected." Since SK Broadband and Netflix had been locked in a lawsuit for years without narrowing their differences, both firms must have felt a sense of fatigue, they said.

"It would have been disadvantageous for SK Broadband to be the only IPTV operator that could not provide the Netflix service, and as global telecom operators are demanding network usage fees from content providers, the precedent on network usage fees will be solidified for Netflix as well. It must have been a burden to be able to do so,” an industry official told The Korea Herald on the condition of anonymity.

"Netflix, on the other hand, may have felt the pressure as the precedent for network usage fees became solidified amid global telecom companies demanding fees from content providers.”

However, some industry insiders, expressed disappointment that no clear conclusion has been made by a court on the controversial issue. The Korea Telecommunications Operations Association, an organization representing local telecom service providers, also said, there are still many problems to be solved in the industry.

They called for the need for legislation regarding the imposition of network usage fees, pointing to how Big Tech firms, including Google and YouTube, do not pay fees to domestic internet service providers, unlike IT firms like Naver.

“Instead of legal judgments, invisible agreements have been reached between the two companies,” said another industry source.

Putting all quarrels aside, SK Broadband, its telecommunications affiliate SK Telecom and Netflix on Thursday forged a strategic partnership to join hands to fortify services for users, according to SK Broadband officials on Monday.

The three firms will come up with new services in which SK Telecom and SK Broadband users can watch Netflix on their smartphones and TV platforms. New subscription packages akin to Netflix's ad-supported membership will also be introduced. Related services will be rolled out starting in the first half of next year.

Under the partnership, they also plan to pursue a technological tie-up. Two SK affiliates will explore ways with Netflix to create a consumer-friendly entertainment experience, using their artificial intelligence technologies such as interactive user experience and customized personalization guides accumulated over the past few years.

“The strategic partnership with Netflix started from the philosophy of SK Telecom and SK Broadband, which prioritizes customer value, and is the result of a general agreement to provide a better media service environment to users by incorporating the technology accumulated by our company,” said Choi Hwan-seok, vice president and head of corporate strategy office at SK Telecom.

Tony Zameczkowski, vice president of business development in the Asia Pacific at Netflix, also showed his expectation for the latest partnership allowing the three firms to start a journey together for common users in Korea.

“Our partnership with SK Telecom and SK Broadband, which have leadership in Korea’s wired and wireless communications and future-oriented technology industries, has a special meaning in that we can provide a convenient content-watching environment to Korean users more,” said the Netflix executive.

Meanwhile, the National Assembly is expected to examine the issue of legislating network usage fees at this year's parliamentary audit next month. Korea's two main political parties have also proposed bills one after another to address the "free-riding" issues here.

Rep. Jo Seoung-lae, executive secretary of Science, ICT, Broadcasting and Communications Committee at the National Assembly, released a statement later in the day following SK and Netflix's announcement.

He welcomed the "amicable resolution" between the two firms, while highlighting that it was, however, not a solution to the fundamental problem.

"We still need improvements in our measures to solve the network usage fees. ... We'll look closely into ensuring that the legal system improvements are properly reformed domestically," the lawmaker said.