Should Big Tech Pay For Network Infrastructures In Europe?
Tech Focus
Over the past few months, there has been increasing debate and contention on a burning issue: should Big Techs pay their fair share of the cost of network infrastructures in Europe? On November 29, the European Movement - France organized a roundtable on this topic at the Maison de l’Europe in Paris, along with CommStrat.
“While the idea of cost-sharing is now back in the spotlight, this debate is not recent. In France, similar discussions took place a few years ago”, recalls Alexandre Archambault, a lawyer specialized in digital law.
In May, when the European Telecommunications Network Operators' Association (ETNO) published a study on the issue, the whole debate started again. According to this study, a small number of service providers — Google, Facebook, Netflix, Apple, Amazon and Microsoft — account for 55% of Internet traffic in the EU, without contributing to the financing of network infrastructures. The European Commission has set a goal of achieving gigabit connectivity with 5G and fiber throughout Europe by 2030, and ETNO believes investments will be made at a loss if Big Techs do not contribute. As a result, they ask Big Techs to pay their "fair share" of network costs.
Faced with the pressures of telecom operators, the Commission announced a broad consultation of digital actors for early 2023. “In Europe, all market players benefiting from the digital transformation should make a fair and proportionate contribution to public goods, services and infrastructure, for the benefit of all Europeans”, Thierry Breton said in September. The words of the European Commissioner for the Internal Market did not fail to worry digital companies. The latter are very skeptical of the ETNO study.
“ETNO figures give the impression that every time a bit of data is sent over a network, there is a cost for the operator. But it's not that simple: networks have very high fixed costs, and they are subject to large economies of scale. As a result, there are a lot of costs that do not vary with the traffic on the networks”, explains David Abecassis, partner at the consulting firm Analysys Mason. In October, the Body of European Regulators for Electronic Communications (BEREC) published a paper critical of ETNO's approach, arguing that "the cost of network upgrades required to handle an increased volume of IP traffic is very small compared to the total cost of the network”.
For their part, Big Techs argue they have already contributed their fair share of network improvements. According to an Analysys Mason report commissioned by the CCIA and DOT Europe, technology companies are investing about €22 billion a year in Europe's Internet infrastructure. They are allegedly saving major telecom operators and other Internet service providers about €950 million a year in network and transit costs. The report also points out that between 2018 and 2021, global network traffic has increased by more than 160%, while network-related costs for internet service providers have only increased by 3%.
Beyond the debate on a potential Big Tech contribution — which could take the form of a toll to use networks — some actors are concerned about potential negative effects on the economy. According to Bruno Veluet, President of the Association of Alternative Telecom Operators (AOTA), “the introduction of a toll could harm innovation and constitute a form of barrier to entry for new digital players. At the international level, this could result in a domino effect whereby other countries retaliate by implementing new regulations, which could in turn disadvantage European service developers.”
Some fear that Europe could follow in the footsteps of South Korea. For a long time, South Korea was considered an example in terms of connectivity. In 2016, the country introduced a tax for service providers on the South Korean network. The effects of this tax have been largely negative. Because the tax is proportional to the size of data sent over the network, some service providers have voluntarily reduced the quality of their video content. South Koreans have also seen a decline in the diversity of online content, as the tax represents a barrier to entry for many service providers. “Today, South Korea has probably the best fibre-optic and 5G coverage in the world, but it has the worst latency of any OECD country: because of these tolls, Netflix servers have had to relocate to Japan, and this distance limits the video quality we can provide”, says Thomas Volmer, Netflix's global director of content policy.
The debate has also focused on net neutrality. According to this principle, data flows sent over networks must be treated impartially by operators, regardless of their content, their source or their destination. On the one hand, imposing a tax on service providers would mean that network access is only possible for providers that can pay the tax. On the other hand, if Big Tech were to substantially contribute to the cost of infrastructure, the neutrality of networks could be affected. Giuseppe de Martino, CEO of Dailymotion for 10 years, believes that the risks are real: “The first attack on net neutrality in Western Europe was when Dailymotion subscribers were no longer able to connect to the service after a telecom operator blocked Dailymotion's access to the network, due to problems with the negotiation of a peering contract.” In contrast, MEP Christophe Grudler says we should not worry too much: “The European Parliament is a fervent defender of the fundamental principle of net neutrality. This principle should not prevent the EU from asking questions about the costs of funding networks.”
Evidently, the debate questions the relationship between telecoms and service providers. Big Tech keep reminding that their content benefits the operators by stimulating demand for a better quality internet connection. "Consumers who subscribe to on-demand services are often also those who subscribe to better internet speeds," says Thomas Volmer. Giuseppe de Martino, CEO of Dailymotion for 10 years, also points out that a large part of the content platforms' expenses goes into peering and transit contracts with telecom operators.
Within the public sector, other priorities are mentioned. According to Mireille Clapot, MP and president of the CSNP (Commission Supérieure du Numérique et des Postes), “There is certainly a growing interest in entertainment, but also a growing public interest in the digitization of certain services such as teleworking or even medicine, and it is not certain that the market alone will fail to satisfy the general interest.” Internet coverage for all citizens is at the center of government concerns. In 2019, only 86% of European citizens had an internet connection. “Managing to provide internet to the remaining 14% is costly: the populations that make up these last percentages are generally located in geographical areas that are difficult to access, and where the business model is not always profitable”, MEP Christophe Grudler explains. This observation could justify a contribution from content providers.
Mireille Clapot and Christophe Grudler highlight another major issue. While the EU is determined to reduce its greenhouse gas emissions by 55% by 2030, the carbon footprint of digital technology cannot remain a second-class concern. “The current telecom market does not take environmental issues sufficiently into account. The higher the bandwidth consumption, the higher the energy consumption", explains Christophe Grudler. Sharing the cost of network infrastructure with service providers could make them more responsible for the use of the bandwidth, says the MEP. For Emmanuel Gabla, a member of the college of the French Electronic Communications Regulatory Authority (ARCEP) and vice-president of BEREC, the increase in digital uses requires some deep thinking: “questioning the endless growth of uses is not illegitimate since environmental issues occupy a more and more important space”, explains the ARCEP member, who also underlines how difficult it is to precisely measure the environmental footprint of telecoms — a topic on which ARCEP and BEREC are actively working.
After the DSA and DMA, the possibility of new regulation may seem disarming. “Don’t you think all these regulations pointing to big digital actors are also about European competitiveness in the audiovisual sector?”, Patrick Amouzou explains. “Europe has managed to propel Airbus to the top, and it is now the world's number 1 in civil aeronautics. If Europe had its own audiovisual champions, wouldn't it be less worried about the subject?”. Alexandre Archambault warns against "the temptation to try to catch up through regulations that will, in the end, only benefit systemic actors that have the resources to absorb the shock.” He also believes that the EU already has the legal instruments to address the issue.
Given the scope of the debate, it is important to keep in mind that to this day, the European Commission has not made any legislative proposal. “For the moment, there is no form of unanimity”, says Thomas Volmer of Netflix. It is essential that upcoming consultation involves all relevant actors of the digital ecosystem. According to all the people taking part in the round table, it is central to consult all stakeholders and to make sure there is a high-quality debate. In the event of a new regulation, it will also be necessary to ensure its adaptability to future technological developments, while maintaining a 360° vision on the subject, Patrick Amouzou reminds. A clear inventory of current financing will also be needed, so that stakeholders can engage in a constructive debate.
One thing is certain: the issue of Big Tech's contributions to network infrastructures is complex. “Bringing together digital players and discussing these issues as early as possible is essential”, says Samuel Le Goff, a consultant at CommStrat, on the purpose of the round table.