The Framework

The Republic of Korea has implemented a distinctive approach to Internet traffic management through its Sending Party Pays (SPP) framework.[1] This regulatory model fundamentally restructures how data transmission costs are allocated within the digital ecosystem. Unlike traditional Internet traffic arrangements based on voluntary peering agreements, Korea's system imposes "mutual settlement" requirements among same-tier network operators, mandating compensation between Internet service providers (ISPs) for exchanged traffic.[2] The Korean approach emerged from concerns raised by Korean ISPs about costs associated with rapidly increasing data consumption, particularly content-heavy applications like video streaming.[3] The framework requires content providers to pay fees to ISPs for network traffic, even though end users are the ones generating traffic and most users are already paying for bandwidth through their ISP subscriptions.[4]

Implications for U.S. Technology Companies

U.S. content providers must choose between paying the above-market-rate network fees or degrading service quality by relocating their internationally stored data, called “caches,” outside Korea.[5] While peering agreements between content providers and ISPs are a natural part of the broadband market, Korea’s regulatory framework inherently tilts bargaining power toward domestic ISPs.[6] The law creates an uneven playing field for foreign content providers who must either accept the artificial transfer from American content companies to foreign ISPs or exit the market.[7] Economic analysis demonstrates these additional costs ultimately transfer to consumers through either higher subscription fees or degraded service quality.[8]

How China Benefits

Chinese content providers benefit from geographical proximity to Korea because data can be cached domestically and then transferred a shorter distance to reach Korea compared to U.S. providers.[9] This advantage circumvents the SPP law without necessarily leading to decreased quality and higher latency. Notably, Korean domestic content providers suffer the most severe disadvantages under this system, as they are still subject to the regime but cannot relocate digital infrastructure internationally like global providers.[10] This potentially creates competitive opportunities for international providers with a strong regional presence—a position increasingly occupied by Chinese technology companies.

Endnotes