08 June, 2022

8 common questions on the “fair contribution” debate

By Maarit Palovirta, Senior Director Regulatory Affairs, ETNO

Since the publication of the EU Digital Decade principles in January, a lively debate has been developing on whether tech giants are contributing enough to the network costs they generate. This is very relevant to the achievement of the EU Digital Decade targets, which foresee full 5G and gigabit coverage by 2030.

In this context, policymakers and stakeholders have spoken up in the media, public debates and ETNO has published a report by Axon Partners on the EU Internet Ecosystem. As the debate continues, I would like to address what we see at the top eight questions being raised in the exchanges with stakeholders. This is our contribution, from a telecoms standpoint, to clarify what the “fair contribution” concept is and is not about.

1 – How would introducing a “fair contribution” by tech giants help consumers?

A first benefit of a fairer allocation of network costs is to relieve the pressure on consumer prices for communication services as the only way to meet investment needs for the transition to 5G and FTTH networks. Today, tech giants generate disproportionate amounts of network costs with respect to consumers and they monetize such intensive use of networks through advertising and data-based business models based. A “fair contribution” by tech giants to telecom networks would allow higher and faster levels of investment, without putting all the burden on consumers.

A second expected benefit will be a faster roll-out and availability of top quality networks, such as 5G and FTTH. This means more inclusive roll-out across geographies, faster connections, ever increasing network reliability and security, more capacity for data-intensive applications.

2 – Are you asking that Europe departs from the Open Internet principles?

No. We suggest regulatory action to tackle imbalances in Internet traffic markets. Such action should happen within the framework of Europe’s Open Internet principles and ensure that all consumers continue to benefit from the full extent of ever-evolving network access and quality.

This is not about access to content. It is about the speed at which Europe can roll-out 5G and FTTH networks, and how such roll-out should be financed. Therefore, we are not asking to amend the current EU Open Internet Regulation for the purpose of addressing the fair contribution issue.

3 – Why should tech giants pay, if consumers are already paying a bill to operators?

Consumers pay to access the full and unrestricted Open Internet: this should not change. What we should tackle is the lack of fair contribution by tech giants to the development of telecom investment: today, they do not adequately contribute to the networks on top of which their revenue generation models are created.

Internet traffic is growing by 30%-40% annually, while telecom revenues are based mostly on flat rates. This means that Internet data traffic growth does not translate into higher telecom revenues, which in turn harms the investment capacity of European telcos. However, such increase in traffic translates into higher revenues for tech giants: their revenue generation is based on ever increasing data traffic on top of telecom networks, but in absence of a fair contribution to the costs of traffic conveyance. For example, they will generate higher advertising revenues as more free content is viewed.

This creates a deficit for telecom operators, who struggle to adequately monetize data traffic within the current market and regulatory context, but must invest in 5G and FTTH. As communication networks are a two-sided market, this deficit would be addressed if tech giants paid a fair contribution reflecting the network costs generated by the delivery of their traffic to end users. This solution would be in line with similar practices in other two-sided markets. For example, news and media markets.

4 – Are you implying that telecom companies cannot handle the current network traffic?

No. Telecom operators have successfully handled data traffic, including in periods of crisis. However, the ever-increasing traffic on both mobile and fixed networks requires continued and increasing investment over time. This was clear also during the pandemic, when a sudden shift from office to remote work required major streaming platforms to step in and handle their traffic to avoid network saturation/degradation, revealing how their business models rely on networks built thanks to telecom investment.

As investment capacity is not infinite, we need to ensure that telecom revenues reflect the ever increasing costs stemming from tech giants’ traffic. This is crucial to boost the pace and magnitude of roll-out of 5G and FTTH networks.

5 – Would charging tech giants for traffic be comparable to energy companies charging appliance makers for the use of washing machines?

The internet is not a washing machine. It is a sophisticated and delicate ecosystem, which relies on the ability of end-users to access the net. Such access is typically charged on a flat basis, meaning that watching streaming, downloading heavy files or any other data-intensive activity is not charged by the MB/GB. In energy markets, instead, clients of energy companies pay electricity based on the volume of their consumption. Therefore, it would make no sense to charge appliance makers for such consumption.

Furthermore, the concept of having big tech companies pay for the exchange of traffic is not new. There are already IP transit/peering agreements in place between tech giants and telcos – unlikely to exist in the case of energy companies and appliance makers. The issue highlighted in Axon’s report is that network operators are not in a position to negotiate these in fair terms given the significant imbalances in their bargaining power, suggesting the need for regulatory intervention.

6 – Aren’t tech giants already investing enough in connectivity?

Tech giants are investing in some submarine cables and in Content Delivery Networks (CDNs). While useful, this investment is not comparable – in terms of magnitude or complexity – to the one for telecom networks that reach million mobile users or households.  For example, according to studies, in the period 2014-2017, the yearly investment in infrastructure elements by tech giants was $17.9bn (Europe). In the same period, figures show that European telecom investment was in average $55bn per year, reflecting the uncomparable effort of bringing superfast broadband to hundred millions Europeans.

7 – Should the United States be worried about the “fair contribution” proposal?

No. Policy solutions to address the “fair and proportionate contribution” of tech giants to networks are specific to Europe, its telecom markets and the imbalances of market power/position between European telcos and tech giants. It is a legitimate European policy debate and it is compatible not only with the EU’s Open Internet principles, but also with high-level international declarations recently promoted or signed by the EU.

In parallel, on-going US initiatives appear to be addressing very similar issues, such as the current market position of tech giants is fair, or on whether they need to contribute to connectivity. This means that the European debate is compatible with similar debates happening in the US.

8 – Are you proposing to “tax” tech giants?

No. The Axon report calls for tackling imbalances in Internet traffic markets and points to negotiation asymmetries between telecom companies and tech giants. This is not about taxation.

*Note: a previous version of this article mistakenly referenced Analysys Mason numbers on infrastructure investment. The material error has now been amended and the numbers reported are now correct.

© ETNO 2022
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