Somewhat ironically, I had only just returned home from the Content Delivery Networks Asia 2012 conference in Hong Kong – where telco CDN’s were touted as the solution to the great telco versus OTT battle – when I read that Korean market giant KT had decided to cut off access for OTT content for Samsung’s connected TVs using its broadband network.
Some Korean delegates at the CDN Asia 2012 event had been arguing that KT’s move into the CDN business, a move it has taken in partnership with local CDN player Solution Box, meant that the firm was now less likely to clash with OTT players such as Samsung and LG.
This argument was basically centered on the fact that deploying its own CDNs gave KT the power to generate revenues from the connected TV manufacturers’ OTT content services by striking mutually beneficial CDN deals with them. This argument makes a lot of sense in theory, but has now been proven at least momentarily incorrect.
KT has initially decided to block OTT content going to Samsung’s connected TV sets and has warned it will take the same action against LG Electronics if the manufacturer does not begin paying carriage costs.
[The operator] has viewed connected TV services as a critical issue ever since the devices began arriving in the market. Back in May 2010, when connected TVs had a tiny presence in the market, KT’s IPTV top brass told me that the looming impact of connected TVs on their broadband access and IPTV businesses was their number one concern.
However, as recently as last November in my discussions with top level KT officials in Seoul they had been claiming that removing OTT connected TV traffic from their network would be a last resort measure, and were still hopeful of striking a deal with the connected TV players.
KT wants end to free piggy-backing
KT’s beef with the connected TV manufacturers is really pretty straightforward - they are outraged that the connected TV manufacturers are basically using KT’s extremely expensive broadband infrastructure as a delivery mechanism for their content and refusing to pay KT a single cent for the privilege of doing so. It’s the classic network operator versus OTT player stand-off.
Around one million connected TVs have been sold in the Korean market of 15 million TV homes, but Samsung and LG Electronics are planning a major sales expansion this year.
KT says – with perhaps a little too much hyperbole – that its “ecosystem could collapse if free riding [OTT] data explosively grows on the network” and argues that they must be compensated for the huge loads that connected TV traffic is placing on its network via the video traffic it generates.
For its part, connected TV giant Samsung, which has endured a frosty relationship with KT over the last couple of years, has reached for the comfort blanket of the Net Neutrality argument in its response to KT. It has even argued – somewhat incredulously – that there is no evidence that connected TV OTT content is impacting on the network.
KT’s move will clearly spark a round of battles in both the legal and political arenas with local regulator the Korea Communications Commission already threatening to take action against KT if it follows through with its threat to block OTT content to connected TVs, claiming that “KT could be impairing social consensus on the [net neutrality] issue.
“If KT pushes ahead with this action, the watchdog plans to take every measure to protect customers’ rights,” the KCC said in a statement.
Where to now?
KT will no doubt have anticipated a regulatory backlash from the KCC and is obviously prepared to weather whatever political storm comes its way to defend its broader point that consumer electronics firms and content producers must stop using KT’s world-leading broadband infrastructure as a free-to-use adventure playground.
Indeed, it is not as if KT is the only local broadband player considering a restriction on serving up OTT content to connected TVs. SK Broadband and LGU+ have also admitted to local press that they were considering their own action – and both will have been emboldened by KT’s decision.
Neither Samsung or LG Electronics can hope to survive in the local connected TV market if KT – which holds around 43% of the local broadband market – persists with its block on OTT content to their connected TV’s, and both will be dreading similar action from SKB and LGU+, which would surely kill the local connected TV market stone dead until an agreement is reached.
As a result, it is hard to see how even a company as powerful as Samsung can realistically hold KT to ransom on the connected TV issue, after all, as KT officials said to me last year, “If Samsung wants to be in the video content distribution business with their connected TV’s then they need to pay the costs of being in that business….Netflix doesn’t get free DVD delivery from the US Postal Service.”
Moreover, these events in South Korea could go on to have profound implications on a global scale, particularly in markets where incumbent operators have deployed heavy capital expenditure on new FTTH networks and are struggling to recoup their investment capital – but are seeing plenty of others making money over their top-class networks.
Let the battle commence.
Tony Brown is a senior analyst with Informa Telecoms & Media. For more information visit www.informatandm.com/