In a significant precedent concerning local regulation of services from offshore content providers, the Korea Communications Commission (KCC) announced on March 21, 2018 that it imposed a penalty of KRW 396 million (around USD 350,000) on Facebook Ireland, for a strategy the company undertook around mid-2017 that diverted certain Korean users to an offshore cache server, instead of a main in-Korea cache server. Given the resulting slowdown in access to Facebook services, the KCC had, following investigation, decided in December 2017 that Facebook Ireland’s strategy constituted an “action adverse to users’ interests”, in violation of the Telecommunications Business Act, and based on this the KCC had announced it would impose sanctions, which could have gone so far as a remedial order to prohibit further user signup for up to 3 months. As noted in local news reports (such as this one) surrounding the KCC decision, the actual sanctions now issued, which comprise an administrative penalty and a (relatively mild) order to improve the process of providing the telecom-based services, evidently took account of Facebook Ireland’s restoration of the in-Korea server in October 2017 and the company’s cooperation with the KCC investigation once it got under way.
Complaints of slowing access, starting in mid-2017, had come from Facebook users who were subscribers of the SK Broadband (SKB) internet service. According to reports (such as this news article from June 2017), Facebook makes its services available to users in Korea basically from offshore servers, but a cache server in Korea is maintained with KT (Korea’s largest ISP) for access to high-frequency content such as popular video clips. Till early 2017, access to the KT cache server was open to pretty much everyone in Korea, including non-KT as well as KT internet service subscribers. However, around the middle of 2017, Facebook disabled SKB subscriber access to the KT cache server, instead routing those users to offshore servers such as in Hong Kong. According to reports, this followed a Facebook request, and SKB refusal, to set up a cache server in Korea at SKB’s expense. The result was noticeably slower Facebook service for SKB subscribers, which eventually prompted the KCC to start its investigation in August 2017. Following the KCC factual determination in December 2017, a Facebook global executive paid a conciliatory visit to the KCC, together with the Ministry of Science and ICT, in January 2018. (On the same occasion, Facebook announced it would be moving local advertising revenue onshore in Korea.)
The KCC’s findings, and imposition of penalty on Facebook Ireland, are seen to signal a willingness on the part of Korean regulators to impose a degree of supervision and control on offshore content providers. The result was also characterized in Korea as a step in the direction of equalizing a perceived disparity, or “reverse discrimination”, in the impact of Korean laws (including data privacy and taxation) on local as compared to offshore enterprises – a concern voiced by leading Korean online sector firms such as Naver and publicly seconded by the KCC itself. (According to one news report on April 2, 2018, the KCC has taken another step and, non-publicly, informed Google that offshore content providers will be regulated locally, within the Korean domestic regulatory framework, on issues associated with the public interest, such as user protection and tax reporting.)
The Facebook situation is probably also symptomatic of commercial issues arising from the escalation in interconnection rates across the board in Korea since 2016. The increasing rates are, ultimately, an outgrowth of an MSIT rule change, which took effect in January 2016, whereby interconnection between same-tier ISPs (KT and SKB, for example, among the first tier ISPs) changed from settlement-free to paid basis. During the past year especially, the industry has increasingly seen tensions surfacing between ISPs and content providers, and between domestic and offshore content providers.