Court rules against Netflix in network usage fee dispute

A Seoul court on Friday ruled against global video streaming giant Netflix in its prolonged network usage fee dispute with South Korean major internet access provider SK Broadband Inc.

The Seoul Central District Court dismissed a request from Netflix to confirm that the United States-based video streaming service provider is not liable to pay network usage fees to SK Broadband. The court also rejected Netflix’s request to confirm that it has no obligation to negotiate with the South Korean company.

The court also explained that the benefit to be gained by confirming the negotiation obligation does not exist is not recognized.

“It is reasonable to view Netflix as having an obligation to pay for access to the internet through SK Broadband or receiving a paid service in the form of maintenance of network connection,” the court said, hinting that the SK company can receive network usage fees from Netflix apart from separate fees collected from Netflix subscribers.

“This decision clearly confirms by law that Netflix needs to pay network usage fees to SK Broadband,” the internet service provider said in a statement.

Netflix said in a statement that it is currently reviewing the court’s decision.

The dispute dates back to April last year, when Netflix Services Korea Ltd., the local unit of Netflix, filed a lawsuit against SK Broadband, claiming it has no obligation to pay fees for using the South Korean company’s network. Six months earlier, the two sides failed to narrow their differences through the Korea Communications Commission’s arbitration.

Local internet service providers (ISPs), like SK Broadband, have been struggling with heavy data traffic amid rising popularity of over-the-top services and wanted major content providers, like Netflix, to share those costs.

SK Broadband, an affiliate of the nation’s top mobile carrier, SK Telecom Co., has accused Netflix of free-riding on its network despite huge traffic overload caused by its streaming service, whose number of subscribers here is estimated to have increased to about 4 million.

The SK company argues that Netflix pays what appears to be network usage fees to telecom companies in the U.S. and France but not in South Korea, where local platform service providers, like Naver and Kakao, pay fees.

But Netflix has insisted that it has no obligation to pay network usage fees as ISPs are responsible for managing their networks and any demand of network usage fees for specific services violates the principle of net neutrality that prohibits content discrimination.

The court decision may put pressure on negotiations over network usage fees between not only Netflix and SK Broadband, but also other major global internet giants, such as Google and Facebook.

Google ranked first in terms of the share of South Korea’s internet traffic in the final three months of last year, accounting for 25.9 percent of the total, followed by Netflix at 4.8 percent.

Despite Google’s massive presence in the country, the company reportedly pays a relatively paltry fee in server costs.

Facebook held a 3.2 percent share, placing third in internet traffic, and also reportedly pays a small fee compared to what local internet companies pay service providers.

Shares in SK Telecom Co., the parent behind SK Broadband, fell 0.15 percent to 326,500 won (US$289), underperforming the broader KOSPI’s 0.51 percent gain.