Korean Broadband Firm Drops Netflix Lawsuit, Reaches Deal

South Korea’s broadband firm SK Broadband Co said on Monday that it was ending all lawsuits with Netflix Inc (NFLX.O), having earlier been in dispute over whether the video streaming giant should pay for costs from increased network traffic and maintenance work. The ISP also announced a partnership with Netflix to release joint products and seek ways to use artificial intelligence (AI) products being developed by its parent, SK Telecom (017670. KS).

The dispute centered around a decision in July by the Seoul Central District Court that Netflix should pay network usage fees from the ISP for heavy data traffic caused by Netflix’s popular show “Squid Game.” SK Broadband has argued that it should be paid because video streaming services generate massive traffic that requires expensive infrastructure. Netflix countered that it was paying for broadband service from SK Broadband and should not be required to pay additional fees on top of that.

SK Telecom, the country’s biggest telecom group, merged with its subsidiary SK Broadband in February. It now operates a nationwide high-speed Internet network based on its technology, offering various packages for business customers. The group’s Thrunet and Hanaro divisions jointly control the market for high-speed Internet access in the world’s fastest-growing nation as measured by data consumption, with a combined share of over 50 percent.

In a joint statement, SK Broadband and Netflix said they had agreed to settle all disputes between the two parties. The two companies will collaborate on research and development to enhance user experience and explore new technologies. In the long term, they will collaborate to bring more innovative content and better services to users worldwide.

The company’s stance is a significant setback to a policy that advocates fair cost recovery for high-speed Internet. It may encourage other ISPs to seek network usage fees from global CPs like Netflix and lead to possible government efforts toward enforcing new regulations explicitly requiring CPs to pay fees.

According to the Commercial Code, if a party receives telecom services from another party and the provider does not intend to offer those services free of charge, the receiver must pay consideration for the services. SK Broadband has claimed that the network traffic caused by Netflix’s popular shows had pushed its network usage to 27.2 billion won in 2020 alone. The streamer has appealed against the ruling, with new proceedings scheduled to begin in December.

SK Telecom shares were up more than 1% in afternoon trade. In contrast, Netflix shares fell 0.5% to $59.24. The stock has lost nearly half its value since the dispute with SK Broadband began. Its loss was compounded by the fact that it faces competition from Chinese streaming services such as iQiyi, which has recently gained popularity among South Korean consumers. iQiyi offers its users free unlimited access to more than 140,000 TV and movie titles and has an estimated 1.7 million subscribers in China.