Dumb, Telecom Industry Backed ‘Network Fees’ Drive Twitch Out Of Korea

Twitch has announced that the company is shutting down in Korea after regulators there imposed a ridiculous new regulatory framework that drove the company's operational costs through the roof.

Basically: Korean telecoms convinced gullible regulators to pass a new regulatory framework wherein edge providers and content companies are forced to pay telecoms additional fees just to have their traffic successfully reach its destination (consumers). It's in addition to bandwidth costs, and, as we've pointed out for a while, it's a dumb cash grab and the latest extension of the longstanding net neutrality wars.

In a blog post, Twitch CEO Dan Clancy explains that with the addition of these new mandated network fees, the company has found it impossible to turn a profit in Korea and has been forced to close up shop:

Ultimately, the cost to operate Twitch in Korea is prohibitively expensive and we have spent significant effort working to reduce these costs so that we could find a way for the Twitch business to remain in Korea. First, we experimented with a peer-to-peer model for source quality. Then, we adjusted source quality to a maximum of 720p. While we have lowered costs from these efforts, our network fees in Korea are still 10 times more expensive than in most other countries. Twitch has been operating in Korea at a significant loss, and unfortunately there is no pathway forward for our business to run more sustainably in that country."

For the better part of the last few decades, global telecom giants have been trying to double dip." As in, not only do they charge businesses and consumers an arm and a leg for (often terrible) broadband, but they've been trying very hard to institute new regulatory frameworks where consumer and content companies alike pay telecoms huge sums of additional money for no coherent reason.

This idea that big ISPs are inherently owed a cut of the revenues of services traveling over their networks is what launched the net neutrality wars around the world several decades ago, when AT&T insisted Google wouldn't ride our pipes for free." It's evolved in dumber and dumber ways ever since.

Under Korea's model, edge providers (like Netflix) are forced to pay network service fees" to ISPs. Basically, ISPs there have claimed that they're inherently owed more money if a TV show on Netflix is super popular, claiming they should be compensated for extra bandwidth costs.

Of course, bandwidth provisioning doesn't really work like that. ISPs are supposed to build networks that can handle any peak capacity spikes caused by normal consumer demand. The origins of those demands are irrelevant. Consumers and edge providers have already paid an arm and a leg for bandwidth, particularly if regional monopolization has driven down any incentive to compete on price.

All they're really doing here is trying to offload network operations and maintenance costs to someone else. In this case: Korean game streamers or Netflix users.

Demanding that popular companies pay more to telecoms just for being popular is an inherently stupid idea, but it's been dressed up by telecom lobbyists as serious adult policy under terms such as sender pays" or sometimes Sending Party Network Pays" (SPNP). I've been dumbfounded by how these proposals have been treated as serious policy.

The efforts always begin with false claims that companies like Google and Netflix are somehow getting a free ride" on the internet, despite spending billions in bandwidth, CDNs, undersea cables, and cloud infrastructure. From there, they usually involve some flavor of false claim that this model will help expand broadband availability to those in need. But its only real function is to fatten telecoms' purses.

Like many countries, Korean regulators largely favor just three big major ISPs, which then influence policy determinations to an extremely lopsided degree. This muted competition, combined with regulatory capture, plus the SPNP model, has driven up costs for Korean consumers (see Michael Nelson's good 2021 piece on this, or this 2022 Techdirt story by Konstantinos Komaitis).

Now, regulatory capture is driving edge companies out of business, and driving up both bandwidth and content costs for consumers. It's all predatory nonsense created by regulatory capture and corruption, and the telecom policy marionettes pushing the idea aren't operating in good faith. They've hijacked regulators to implement systems that deliver telecoms billions of additional dollars for doing nothing.

And if you think this is only happening in Korea, it's not. It's been an ongoing debate in the EU, where telecoms have floated a direct tax on any company that accounts for more than 5 percent of a telco's average peak traffic. Here in the States, FCC Commissioner Brendan Carr (R, AT&T) has been a big proponent of the idea for several years now.

Again, it's basically telecoms trying to get paid twice for the same (often substandard) service. That it has been dressed up as a serious policy proposal is embarrassing. California's net neutrality rules ban such practices, and if they're worth anything, the FCC's soon-to-be-restored rules will as well.