When Ukrainian refugees first came to refugee centres, it wasn’t blankets and water they looked for first, but Wi-Fi. Information is powerful. It allows us to find blankets, water and all the other necessities.
But the internet is not just about information. Pre-internet, it cost about $20 for each international phone call and it was voice only. Post-internet, 200 people can be on video calls for hours practically free of cost to all, including the internet service providers (ISPs) in the middle. Pre-internet, democracy fighters hand-printing protest flyers had to risk their lives to pass them around while avoiding the eyes of the police trying to arrest and torture them. To reach one million people by phone or postage, they needed about one million dollars. Post-internet, protests are organised from the comfort of home by posting just one video, anonymously, with zero cost to the author when delivered to millions or even billions of people. This did not come at the expense of someone else – it was already paid for by the uploader in the form of a monthly flat fee.
Promise and science: the creation of magic
Creating something big out of nothing – how was this magic made possible?
Because of two things: promise and science. The promise is that all routers will deliver data packets to their immediate neighbours without charge or condition and without discrimination – financial or physical. The science is that data consisting of electromagnetic waves cause nearly no burden on the medium, just as light reflected off mirrors imposes no burden on the air or empty space or the mirror. This is the same as watching television at home for hour after hour and not paying a dime more. It is the same as one person seeing a group of people by using their eyes to collect a UHD-level high resolution video of them at no cost to anyone.
To illustrate this, let’s assume for a moment that there are only 3 computers on the world’s internet at a connection capacity of 10 Mbps, 50 Mbps and 100 Mpbs respectively. No matter how much you try to be a ‘heavy user’, your ability to cause congestion is limited by the size of the pipe you are using. You are already paying for that pipe. As long as everyone pays for their own pipe and the promise is kept, there is no reason for extra payments like delivery fees, sender pay or even ‘receiver pay’. If people want to use more traffic, they will pay more and buy bigger pipes. No one says that the internet is free. As long as everyone pays the connection fee at the end, the money aggregated is sufficient to support all the traffic the world needs because that is how the connection fee is calibrated. The internet is free in that sense. Everyone pays for connection at the end so no one pays for delivery in the middle.
This is why, over the four years of the pandemic, while traffic volume increased five times, the total cost of operating and capital expenditure on network management did not increase. This is because as long as ISPs deliver the bandwidth promised to each house, there cannot be congestion or any other burden on the network.
Figure 1: Data traffic vs network costs, 2018-2021. Source: Analysys Mason
The internet is a commodity good
The promise and science are observed by the ISPs themselves. The internet is a commodity good, meaning that it is the same product wherever you buy it. Everyone who sells the internet to any single user must guarantee a ‘best efforts’ connection to all other users of the internet regardless of where that single customer is, be it in the Skylab, on the moon or on Mars. No single ISP has such a network so they must work with one another to deliver full connectivity even to a single user. They connect with one another through transit and peering. Transit is the service that end users buy from ISPs and the transit fee is used to maintain connection to other ISPs, who together will deliver that ‘full connectivity’ to the paying transit customer. Peering is a connection without guaranteeing full connectivity – just an exchange of traffic between the peering partners.
Whether through transit or peering, what has been established is that ISPs do not discriminate either physically or financially between data traffic, meaning that they do not discriminate by content, authorship, device, application or payment. They keep the promise of receiving data packets from one neighbour and passing them to another neighbour without any condition or payment. All ISPs share their immediate connections with all other ISPs, charging only for connection, not for delivery. If this did not happen, each ISP would have to constantly ask other ISPs for money and the transaction cost of that alone would bring down the internet.
The only effective way to allow all consumers to access all content is through observing the no-discrimination rule
Because the financial arrangement of defraying the cost of data delivery from anyone to anyone was so successful, it was made into a norm that traffic delivery cannot be performed or prioritised in exchange for payment or on account of its content, authorship, device, application or payment – net neutrality.
Access to content is critical to trade
How much trade can take place over this powerful medium is beyond imagination. Because of this, trade law accords the internet a very special place. Free trade agreements (FTAs), preferential trade agreements and regional trade agreements have chapters on the environment and labour in order to protect values which, if ignored, would allow countries to compete unfairly, ruining domestic markets. The 1994 GATS agreement1 already had an Annex of Telecommunications, later incorporated into trade agreements, which guaranteed trading partners’ access to public telecommunications. On top of that, the 1998 Agreement on Basic Telecommunications Services required governments to sanction the anti-competitive practices of incumbent ISPs and resulted in Telmex, the incumbent phone carrier, being disciplined by the World Trade Organisation for charging excessive delivery fees.
Some trade agreements, such as the US-Korea FTA (KORUS) and the US-Mexico-Canada FTA and digital trade agreements, also began to contain a provision that recognised the value of consumers being able to reach all content online. Legal scholars regard this as a recognition of net neutrality. The only effective way to allow all consumers to access all content is through observing the no-discrimination rule. If ISPs start discriminating by payment through a delivery fee, content or authorship, consumers cannot access that discriminated content.
Sender pay rule violates net neutrality and trade norms
A proposal on the horizon, called the ‘network usage fee’ or ‘fair share deal’ would legally require that foreign content providers delivering traffic to a country pay the local ISPs. Net neutrality clearly bans such sender payments because they would discriminate between data traffic by whether the sender had paid for it. As explained above, asking for payment for delivery would bring down the internet. The FCC Open Internet Order 20102 is the bible of net neutrality and it again bans delivery fees from being charged by ISPs to content providers. The payments would also violate the digital trade norms discussed above.
The impact of the sender pay rule on the internet ecosystem and international trade was poignantly shown in South Korea. Korea instituted a partial sender pay rule, i.e. only among ISPs in 2016, but the burden of the sender pay trickled down to the sender side internet access fees (in other words, the transit fees), which have increased to eight times those in Paris and ten times those in Frankfurt (see Figure 2 below). This has made the network environment lethal for Korean content providers (CPs) which explains why we don’t see many successful startups from the country.
Figure 2: Average transit costs in USD per gigabyte of data by major city. Source: TeleGeography, 2021
Many Korean content providers also placed their servers outside Korea to avoid the exorbitant transit fees. This, of course, exerted an upward pressure on how much the Korean ISPs charge foreign platforms/content delivery networks for peering to deliver the content inside the country. Content providers, concerned about the one-sided payment requirement, may just not deliver to a jurisdiction that charges this fee. Indeed, Twitch pulled out of Korea citing ‘network fees 10 times more expensive than in most other countries’.3
It is likely that if a ‘network usage fee’ bill is passed, it will make both transit and peering fees even higher in the country concerned.
The impact will not be just on content providers. One category of content provider is platforms and they are not charities. If they are charged for delivery, they will have to charge individual content providers, artists, media and whoever becomes popular on their servers because those individual users are generating outbound traffic and therefore incurring a cost to the platform.
Paid peering mandated with the force of law?
Paid peering is not explicitly banned by net neutrality. However, the problem with the current initiatives in Korea (and Europe) is that paid peering is mandated with the force of law. The side without the payment obligation can abuse the obligation imposed on the other side and charge exorbitant fees.
The argument made by the Korean ISPs is that ‘domestic content providers are already paying internet access fees’ while Google and Facebook are not. But what domestic CPs are paying for is transit, with all its full global connectivity, and what foreign CPs are getting is peering whereby the content provider only gets access to a limited group of connections.
Furthermore, Google and Facebook are paying through the subsea cables they are laying and Netflix is paying by distributing cache servers around the world. Korean ISPs are benefitting from this infrastructure because, when that traffic comes through the subsea cable or through cache servers, the Korean ISPs don’t pay high transit fees to the higher tier ISPs who have otherwise delivered that traffic.
Contrarily, if the network usage fee bill passes, discrimination will be against foreign content providers. Mandating transit payment by law is not oppressive at all because it is needed anyway. Mandating peering payment is oppressive because peering payment is otherwise up for negotiation. The parties are free to negotiate and often do not pay at all. For this reason some believe that the network usage fee law violates the KORUS FTA.4
The two-sided market and the ‘third payment’
ISPs cite the two-sided market theory to avoid the critique of ‘double payment’. But ISPs are already charging twice, benefitting from the network effect. ISPs are paid for the traffic sent when they are paid for the traffic received. What ISPs are really seeking is a ‘third payment’.
The Nobel Laureate economist Jean Tirole is the father of two-sided market theory. He jointly wrote a paper arguing that paying for traffic will harm the market – this third payment will certainly kill the market.5
To conclude, digital infrastructure as a human right and as a mode of supply in international trade can be protected only together with its underlying arrangement of net neutrality, as both international human rights law and international trade law have already recognised. Paid peering may not be a direct violation of net neutrality. But the government forcing only one party in the peering negotiation to pay will allow the other party ISPs to game the system, which will ultimately cause the same result as a net neutrality violation. If that happens then individuals and merchants will suffer great costs in delivering their messages to the public, in detriment to both democracy and economic development.
This article is adapted from a presentation given by Professor Park at the IIC Asia Forum in February 2025.
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