Roslyn Layton joins the podcast this week to talk about broadband networks and whether or not Netflix and other streaming video services are getting a free ride. We review a recent South Korean Court Case that could change the way broadband networks operate globally, analyze President Biden’s broadband plan, and discuss the free-market approach to ensure network investment.
Roslyn Layton is a leading international expert on technology policy. She is Senior Vice President of Strand Consult, an independent consultancy serving the global mobile telecom industry. She is also a Visiting Researcher at Aalborg University Copenhagen where she earned a doctoral thesis on network neutrality. She served on the Presidential Transition Team for the Federal Communications Commission (FCC), and her work was critical to the FCC’s defense of the Restoring Internet Freedom Order. Finally, she is a Senior Contributor to Forbes.
TRANSCRIPT
Beverly Hallberg:
And welcome to She Thinks, a podcast where you’re allowed to think for yourself. I’m your host, Beverly Hallberg, and on today’s episode, we talk about broadband networks and whether or not Netflix and other streaming video services are getting a free ride. We’ll look at a recent South Korean court case, which could change the way broadband networks operate globally, and analyze President Biden’s broadband plan and the free-market way to ensure network investment.
Here to break down this complicated topic is Roslyn Layton. Roslyn Layton is a leading international expert on technology policy. She is Senior Vice-President of Strand Consult, an independent consultancy serving the global mobile telecom industry. She is also a visiting researcher at Aalborg University in Copenhagen, where she earned a doctoral thesis on network neutrality. She served on the Presidential Transition Team for the Federal Communications Commission, and her work was critical to the FCC’s defense for the Restoring Internet Freedom Order. Finally, she is a Senior Contributor to Forbes. Roslyn, a pleasure to have you on She Thinks today to talk about this important topic.
Roslyn Layton:
So great to be with you, and I love She Thinks. I listen to it every day as I’m multitasking through work and family life.
Beverly Hallberg:
Yes, it’s great that we have broadband to be able to stream things like She Thinks and other services that IWF provides. And it brings us to our topic today. And I first just want to start with trying to define very simply what broadband is. So when we talk about broadband, what exactly do we mean?
Roslyn Layton:
Sure. Well, the name itself is actually reflecting, just engineering. In the early days of the telephone, we talked about narrowband, right? And broadband was about being able to deliver data, not just voice, not just the old telephone. It was about delivering pictures, delivering music sound, many more things than just our voice. So when we talk about broadband, it’s that technology. But anyone who’s been through the pandemic, broadband is the way we work. It’s the way we learn. It’s the way we get health care and the way we relax.
Beverly Hallberg:
And it’s what we’re doing right now. We’re using broadband to be able to talk together. You actually are based in Copenhagen. So here we can have this simultaneously conversation [inaudible 00:02:34], even though you’re on the other side of the pond. So broadband has been huge. Now, you mentioned the pandemic and, as you said, it showed how much we rely on broadband. I know from my work, especially, broadband becomes extremely important, the internet, but also just thinking about schooling. You mentioned health care. And so did the pandemic point out that maybe there are some haves and have nots within broadband? Because I know we talk a lot about the rural communities, are they able to have access to broadband? And did we see, especially with young people and students falling behind, depending on their access to broadband?
Roslyn Layton:
Well, one of the upsides from the public policy perspective: I think a number of policy scholars were for years trying to get people to understand that we all need to get connected. We all need to be online. And now since the pandemic, nobody doubts that anymore. Certainly, the experience of COVID-19 demonstrated that there is a digital divide, and it has a lot to do with income, it has something to do with digital skills. But what we also experienced is that the networks in the U.S.A worked, they were provisioned, they were prepared. People were able to keep going and not that it was a good experience for everyone, we were able to maintain a measure of our lifestyle, of our livelihood. And that was because of all the private investment that you indicated earlier.
Beverly Hallberg:
Was there an aspect to entering this COVID era where you were worried that broadband wasn’t able to hold up with the amount of people who were using it? Even thinking about streaming videos, which Netflix became extremely popular during that time, was already popular, but so many people were streaming videos just to keep entertained as they were staying at home. Were you surprised that it held up as well as it did? Or is that what you expected?
Roslyn Layton:
I’ve done a paper on this, in fact, I mean, what’s interesting, you had referenced that I did this Ph.D., we had this whole period of the pandemic where broadband providers had every opportunity where they could have harmed the network. They could have harmed their content providers. They could have harmed their users, and they did the opposite. They actually offered free service. They ended any overcharges, late fees. They didn’t have late fees, and they also made new networks available. On top of that, the FCC provisioned a number of what’s called broadband benefit, a number of subsidies for low-income users. I would say really what we saw was America’s broadband industry really stepped up to the challenge. They were ready, not that they knew it was going to happen, but they stepped up.
That wasn’t the case in every part of the world. For example, in Europe, we saw the European policymakers saying to Netflix and Google, would you please lessen your streams? Would you lower from high definition to standard definition so you don’t overload the networks? What I find in general is that broadband providers really try to overdeliver. And we’ve even seen that in South Korea, which we’re going to talk about. Even with all of this dispute with Netflix and the broadband providers, the end users have never experienced that their content was somehow throttled or blocked. So for me, it was an amazing experiment from an academic perspective, to see all of the sort of pro-regulatory wisdom being disproven.
Beverly Hallberg:
And so let’s talk about Netflix. This is obviously a streaming video service and I think is an interesting stat, which is today over 80% of internet traffic in the U.S. and globally is streaming video. So I think initially we thought anything related to internet traffic was going to be emails, sharing general information, but it’s actually video usage that has the largest share of how people use it. And this has presented some issues with just the rules and how things are set up specifically with Netflix. And there is a South Korean court case that dealt with this. So can you explain to us, first of all, how does an entity like Netflix work when it comes to the policies and regulations about streaming video and how this court case fits in?
Roslyn Layton:
Yes. Well, it’s a fascinating topic, and this court case is still ongoing. It’s now in the second year of the litigation. But bear in mind, South Korea’s really considered the world’s number one broadband market by a number of studies. For example, the high take-up of fiber to the home, the access use and skills of the Korean people, and the sheer amount of data that they consume. So it’s very interesting that this court case happened in Korea. But what I’d say is, this is a country that’s long recognized that if you want to have the world’s best networks, you have to have business models that work for everyone, versus in the West, we’ve had a lot of views around, well, it should be favored to one set of actors or another. I think in South Korea, they’ve really tried to underscore that content providers have responsibility, broadband providers have a responsibility, and so forth.
But at any case, Netflix is, in many respects, is an amazing company. They’re very popular. They have become bigger than any cable company in the world, but they are a very successful studio. They make their own content. And over the period, since they began in 2016, their content has increased about a hundred times. I mean, it’s staggering to go from zero to that amount of traffic, and they don’t really have any controls or necessarily incentives to make it efficient or to sort of like encode it. If we were going to imagine a well-encoded content would be like boxes, would you take the refrigerator box and stack 100 of them on top of each other, or would you fold them and make it more compact? So this whole issue around making your streams very efficient is an important one if you care about things like the cost to the network, how much equipment you need to use, how much electricity you need to use. So Netflix is really the key offender in terms of creating a lot of content. It’s kind of the gas guzzler of the internet, if you will.
So in any case, in South Korea, this explosion on the networks, traffic onto one broadband provider’s network, and they said, look, we’ve got to work this out somehow because it’s tens of millions of dollars. It costs for us. And we don’t want to pass this on to our end users because not all of them subscribe. Maybe one-fifth of the end users subscribe or something like that. So it wasn’t fair. And this is actually normal. I mean, it’s a two-sided business transaction, it’s a two-sided market. And Netflix refused and they brought a lawsuit saying, we have no obligation to negotiate.
So anyway, this has been playing out in court. The court has rejected Netflix’s arguments and said you do have an obligation. Meanwhile, the Korean Parliament created what they call the “Netflix law” that now requires any content provider that has 1% or more traffic needs to pay a fee to ensure that the traffic is delivered and to cover the costs. And Netflix accounts for maybe 7% of all the traffic in Korea, so it’s quite a large number. In some countries, it’s higher than that. In the U.S., it’s maybe 30% at times and so forth. So it’s an important step because for so long, Netflix and its sort of large content providers would say, oh, you’ll break the internet if you do this. And that’s actually the opposite. We have to do these things because the content providers will not on their own accord pay the fair share of what it costs to deliver the traffic. And so now we have to have some kind of policy instrument to do that.
Beverly Hallberg:
So since Netflix is not paying for this, how does that cost get divvied out? Who ends up paying for it?
Roslyn Layton:
Well, so the interesting thing is Netflix competitors are paying. So that’s, for example, Disney+ and Facebook and so on. It’s a business expense like any other. And it will also depend on the business model. So, for example, Google is a large traffic provider, but their revenue source is advertising. And the revenue that they earn comes from an auction for keywords. So they don’t really have end users in a payment relationship necessarily. So every company’s going to be different, but at the same time, these companies also invest in their own networks, in transit, in undersea cables, content delivery networks, and so on, and this is just the part of the network that they didn’t want to be involved in. They wanted to have that part be free.
Basically, countries are sort of waking up to this and saying, look, you need some kind of incentive to push you to make your content more efficient. We also have climate implications because of the energy consumption that this does. And also, digital divide issues, that the price of broadband has continued to fall for many years now and broadband providers, if they want to recover a cost to make investments, to keep going to the next generation of network, they need to be able to recover the costs. It’s not fair to put all of that on the end users. The business users have to pay as well.
Beverly Hallberg:
And so let’s talk about just public policy and laws, legislation regulation. What is it that you think is the answer to this problem?
Roslyn Layton:
Well, personally, I like the free-market approach if possible. I would like to see the good-faith negotiation between the content providers and the broadband providers. Well, they’ll work out for themselves, whether they’re going to use an engineering solution, a payment solution, or what have you. What I don’t like is the coercion that we see today. What we see now is large content providers who are actually bigger than broadband providers themselves, who are sort of forcing traffic into networks, forcing sort of solutions, not paying what would be the market price. So not being cooperative. I think that it’s not a smart practice to do. I wish that they would be good corporate citizens. They appear to double-down to go the other way.
So what has emerged now, we have a major proceeding at the Federal Communications Commission on the future of universal service, and over 100 commenters from all over all sort of walks of very diverse representations of America are talking about, they’re tired of big tech taking this free ride on broadband networks. The rural broadband providers pointed out different community groups, underprivileged communities, different groups that are advocating for minority rights and privileges, for example. They have all come forward to say that big tech also has a responsibility to participate in the financial part of our broadband networks.
Beverly Hallberg:
So let’s talk about what President Biden is doing. Has he worked much in this space? I know as 5G technology is getting rolled out across the country, that that fits into this, but what has President Biden lifted up as his model for how we should move forward in the broadband area?
Roslyn Layton:
So I think the main contribution today has really been, there have been huge, I mean, unprecedented levels of broadband subsidies, tens of billions of dollars appropriated under the Infrastructure Investment and Jobs Act. I dare say this has been distributed to dozens of federal agencies. It’s not my preferred approach because we have one agency, the FCC, which knows how to do broadband subsidies. We have all the machinery to do it. And instead, this money’s been sprinkled all over the place. So there’s a lot of concerns that it will not be used as it’s meant to be, that it will be squandered, that it will be politically distributed, and so on.
But this doesn’t take away that it’s important and that there may be instances where we need to have subsidies. But I would prefer that the big tech companies would be involved because, if they paid their fair share, we wouldn’t need to have taxpayers foot this bill. We wouldn’t need to do deficit spending. To give you one example, look at the spectrum auction for 5G. It raised over $90 billion. That is a record amount for an auction in the U.S. It’s about two-thirds of our auction proceeds forever. It’s an amazing number, and that was private companies put forth the money to use that spectrum.
When big tech wants to get free spectrum or unlicensed spectrum, they pay nothing to use it. That’s just another example of these giveaways. We give them free transit on networks. We give them free spectrum. And then we sort of say, well, oh, we need more money for broadband. Let’s do deficit spending. So there’s a reluctance here to put sort of on the table, let’s allow the two-sided markets to work and then tell big tech you got to pay your fair share.
Beverly Hallberg:
Final question for you. Since we’re talking about Netflix today, I saw some reporting that Netflix came out and said that their era of allowing people to share their login and password is over, that they are going to be clamping down on that. I have even seen this with different other services. For example, I have the NBA League Pass. You can’t share the way that you used to. Is this just because of the pandemic and COVID and so many people being online and streaming video that these companies are waking up to this and trying to figure out how to make more money?
Roslyn Layton:
Well, so on the one level, from the rights perspective, I think there are fair use issues, and I don’t disagree with Netflix saying if you buy a subscription, it’s for one person or house, however, whichever subscription, there’s some statements of how it should be used. If you will see, Netflix is a profit maximizer in every way. I mean, they will increase their prices, as they’re paying rights to deliver the content that they’re delivering. They invest in their own content. So, you know, that means it’s a cost of business. But people continue to subscribe to Netflix, and they are smart about managing their costs. And this is just another thing that they need to do. So I’m confident that Netflix, whatever constraints they face, they can adapt, and they have been a successful global company. I’m sure they’ll continue.
Beverly Hallberg:
Yeah. We’ve seen a lot of companies adapting, especially during the era of COVID, which I think points to the private market does know how to adjust for things we can’t even predict, which is a good thing. Before you go, Roslyn, let people know where they can follow you and find more information. You’re one of the best thinkers when it comes to this area of broadband; I want to make sure people know where they can find you.
Roslyn Layton:
Well, thank you for that. You can certainly go to Forbes. I write about this. This is one of the topics I cover on Forbes. You can reach me there. I’m on LinkedIn, as well, on Twitter @RoslynLayton. And I’d love to hear from you. Thank you.
Beverly Hallberg:
All right. Well, Roslyn, thank you so much for your insight and also joining us on She Thinks today. We appreciate it.
Roslyn Layton:
Definitely.
Beverly Hallberg:
And thank you all for joining us. Before you go, Independent Women’s Forum does want you to know that we rely on the generosity of supporters like you. An investment in IWF fuels our efforts to enhance freedom, opportunity, and wellbeing for all Americans. So please consider making a small donation to IWF by visiting iwf.org/donate. That’s iwf.org/donate. Last, if you enjoyed this episode of She Thinks, do leave us a rating or a review. It does help. And we’d love it if you’d shared this episode with your friends so they can find more of She Thinks. From all of us here at Independent Women’s Forum, thanks for watching.