BRUSSELS—The European Union is considering proposals to make content companies like Netflix pay more of the cost of broadband infrastructure. But when South Korea experimented with these “sending-party-pays” (SPP) policies, it led to less efficient Internet traffic, higher prices, and lower-quality content for consumers, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.
“South Korea’s experiment is a cautionary tale for policymakers considering sending-party-pays,” said Joe Kane, co-author of the report and director of broadband and spectrum policy at ITIF. “Sure, SPP proposals are politically appealing—there’s been a lot of rhetoric that portrays Big Tech as greedy bandwidth hogs that aren’t paying their ‘fair share’ and whose users would not be hurt by paying for those traffic flows. But rather than resulting in better broadband networks, enacting SPP policies would worsen the quality of content and distort the prices that would otherwise naturally form in the Internet marketplace.”
The report breaks down the economics of Internet traffic and how SPP policies impact that market, providing two models of these interactions. ITIF finds that in both models SPP policies fail to efficiently transfer money from content providers to ISPs in a way that benefits consumers. After contextualizing the concept of “fair” contributions to the Internet infrastructure, the report provides examples of where SPP policies have been considered and enacted. Along with highlighting that the EU is considering the SPP route and examining how South Korea has implemented the policies, the report shows that the United States is also considering similar policies.
“Clearly, the fascination with SPP models is spreading internationally,” said Jessica Dine, co-author of the report and research assistant for broadband policy at ITIF. “But the allure of regulated pricing is a mirage that will give way to consumer harm by distorting the market dynamics that would otherwise coordinate the complex Internet ecosystem.”
Read the report.
