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South Korea's gigabit broadband woes should serve as object lesson for FCC regulators

South Korea's gigabit broadband woes should serve as object lesson for FCC regulators

The FCC now has collected more than 3 million comments in a major proceeding that may reclassify broadband Internet service to fit within the largely- inflexible common carrier model in Title II of the Communications Act of 1934.

Under this regime, companies may be required to request government permission in order to enter and exit the market for broadband services, and the FCC would have the authority to enforce price controls that may lead to unnecessary disruption among competitive Internet services.

Is this the regulatory silver bullet for the Internet's growth?  Not according to Progressive Policy Institute Senior Fellow Hal Singer and Brookings Institution Nonresident Senior Fellow Robert Litan. In a recently-released report, these scholars conclude that "[i]mposing public-utility style regulation on Internet access would dampen innovation and investment in more, faster broadband."

Additionally, comparative research shows that a similar form of utility regulation implemented in Europe has brought Internet investment rates down to a dismal $244 per household, compared to $562 in the United States under its current deregulatory model, according a new study by University of Pennsylvania Law School Professor Christopher Yoo.

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Despite such analyses, some advocates continue to cite other countries, such as South Korea, as leapfrogging ahead of our nation's broadband network capabilities. A closer look at actual marketplace events there, rather than press reports from afar, reveals that what has transpired is quite different from what others have reported as fact, however.

I had the privilege two summers ago to be the first American professor teaching digital entrepreneurship in South Korea. Since then, I have followed broadband developments there with a much keener sense of knowledge and interest.

One of the first things I learned in Seoul was that the 1Gbps broadband service that many in the U.S. were referencing actually did not exist then, or today. In 2009, with much fanfare, the Korea Communications Commission (KCC) announced that it was working on plans that would enable Koreans to access 1Gbps broadband service by 2012.

Private South Korean firms, notably KT (the former Korea Telecom), SK Telecom and the cable provider CJ Hellovision, became the principal participants in the gigabit project, with the government committing about 5 percent of the total estimated budget.

But by 2011, only a very small-scale 1Gbps pilot project with 1,500 households in five South Korean cities had been launched, all with government funding. None of the private firms could make a case for moving ahead, however, since they had not yet developed a business model to justify the scale of investment that the KCC had said would be necessary.

Three years passed without any indication of progress on the effort, leading many to believe that the plan had hit an impasse. Then in July 2014, Chairman Chang-gyu Hwang of KT, the dominant broadband provider in Korea, representing almost half of the country's total broadband market share, called a press conference--an announcement that I hoped would be an encouraging milestone.

Chairman Hwang told those assembled that the company faced its first annual deficit in 2013 due to its sales declines in wired broadband, along with almost-flat growth in mobile subscribers. It was the worst time in the company's history, one that he called a "devastating year of poor performance." KT even had suspended new customer marketing for 45 days and asked 8,300 employees to voluntarily resign to help the company overcome this crisis.

Chairman Hwang went on to announce KT's rebranding of GiGAtopia, a phased program backed by a $4.4 billion investment that is aimed at reestablishing confidence in the firm.

While this was a promising announcement, concerns about cost quickly began to mount. The Korea CommunicationsReview later revealed, "[once] KT begins the service, it will have to deal with increased costs of investment in access lines. ...Not only that, costs of investment in backbone networks will also rise due to increased backbone traffic resulting from installation of Gbps-level access lines and more importantly because of fast-growing free-riding traffic like PSP [peer-to-peer]. This has been the biggest concern for KT."

As a result, KT is seeking government permission to institute volume-based pricing, limit traffic for heavy users and other measures before proceeding with this enormous investment. Any notion of having common carrier-like regulation simply is a non-starter, since South Korea, like the United States, operates under market constraints that require regulatory flexibility to promote the necessary investments for broadband networks.

This outcome should serve as a cautionary tale in the U.S.. A closer look at European broadband investment models, and a better understanding of actual broadband developments in countries such as South Korea, should help inform the FCC and Congress as they deliberate our nation's future broadband path and overall Internet growth.

Stuart N. Brotman teaches at Harvard Law School and is a Nonresident Senior Fellow in the Center for Technology Innovation at The Brookings Institution. He is the author of Communications Law and Practice, now in its 36th edition. He can be reached at sbrotman@brotman.com.

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Tags telecommunicationfccinternetLAN & WANUniversity of Pennsylvaniabroadband

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