Telcos’ Big Tech Must Pay Campaign
But also — Germany, DMA, Enlargement, Borrell, Budget, EPPO
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Big Tech Must Pay for Internet Infrastructure, say Telecom Players
The telecom sector is lobbying for the big technology companies — which account for a substantial percentage of internet usage — to pay their “fair share” in the massive investments required to level up infrastructure. Their arguments are gaining ground with officials in Brussels, to the dismay of Big Techs.
WHAT’S UP • “In Europe, all market players benefiting from the digital transformation should make a fair and proportionate contribution to public goods, services and infrastructures, for the benefit of all Europeans”, Internal Market Commissioner Thierry Breton stated on 14 September. The ongoing debate is whether big tech companies — including social media platforms such as Meta and content creators and aggregators including Netflix, Amazon and Alphabet — should pay for the development of the internet infrastructure on which they so heavily rely to provide their services.
FOOTING THE BILL • The European Commission has set the goal of achieving gigabit connectivity with 5G and Fiber-To-The-Home (FTTH) internet connection everywhere in Europe by 2030. However, according to lobby group ETNO (the European Telecommunications Network Operators Association), telecom operators are the only ones footing the bill necessary to transition their networks to 5G and FTTH technologies. The costs of these investments will not be covered at today’s prices for internet usage, unless internet bills were to dramatically go up — and nobody really wants the internet to follow the same curve as gas prices.
THE AYES • In a report prepared for ETNO, Axon Partners found that while the EU’s telcos “have invested over €500bn in fixed and mobile networks over the past 10 years, […] most of the data traffic growth over the last decade has been driven by a small number of leading Over-The-Top (OTT) providers with little or no economic contribution to the development of national telecom networks”, while accounting for over 55% of all network traffic. For this reason, ETNO is now pushing for telecom regulations that impose a “fair contribution” to infrastructure investment upon Big Techs.
ETNO’s call did not remain unanswered. In March 2022, Thierry Breton announced in an interview with French newspaper Les Échos that the Commission had been working on a proposal to make content-heavy platforms contribute to the investments needed to upgrade internet networks. In August 2022, the French, Italian, and Spanish governments issued a joint paper in which they called upon the Commission to intervene on the subject with a legislative proposal.
THE NAYES • Tech companies argue that they have already contributed their fair share to the improvement of the network. Tech firms invest roughly 22 billion euros per year in Europe’s internet infrastructure, which saves big telecom operators and other internet service providers about €950 million per year in network and transit fees, according to a report by Analysis Mason commissioned by the CCIA and DOT Europe.
The report also underlines that while global network traffic increased by over 160% between 2018 and 2021, network-related costs for internet service providers only increased by 3% during that same timeframe. Christian Borggreen, head of CCIA Europe, further added that “the costs of potential network usage fees would ultimately end up hitting Europeans directly in their pockets, in the form of more expensive cloud and streaming services.”
NET NEUTRALITY • The debate was further inflamed when digital activists warned that the proposed intervention could hinder net neutrality. According to the net neutrality principle, Internet Service Providers (ISPs) cannot discriminate or favour any of the content that transits on their networks.
Making big content creators such as Netflix and Amazon pay for the network that they themselves use could therefore cast doubts on the impartiality of dataflow management.
BEREC WEIGHS IN • The latest episode of the series came on 12 October when the Body of European Regulators for Electronic Communications (“BEREC”) published a paper in which it attacked the “fair contribution” rationale.
BEREC stressed that the internet has proved “its ability to self-adapt to changing conditions, such as increasing traffic volume and changing demand patterns” and that there must be a strong economic justification to intervene in the market and change existing rules.
The main rationale for such an intervention — namely, more traffic causes higher costs for network operators — is not fully representative of reality, BEREC contends. “The cost of network upgrades that are necessary to handle an increased IP traffic volume are very low when compared to the total network costs”, it argues.
BEREC stated that content providers and network operators are interdependent, as the better the content available, the higher the demand for high-speed connection. Therefore, BEREC concluded, there is no evidence of Big Techs free-riding over investment efforts of network operators, because costs for internet connectivity are typically covered by final consumers.
NEXT STEPS • The debate is far from over. Euractiv reported that another study on the proposal’s potential implications on innovation and competition is due in mid-November. In December, the Commission is set to launch a market investigation on the topic, while a formal legislative proposal is expected in the first months of next year.
In Case You Missed It — Energy, DMA, Enlargement, Borrell, Budget, EPPO
ENERGY • Following the informal summit in Prague last week, the European Commission is expected to publish on 18 October a proposal on joint gas purchasing, an alternative price benchmark for gas, and better sharing of stored gas in case of shortages. The progress was made after Germany and the Netherlands came up with a joint paper calling for using an existing EU Energy Platform, thereby revising their initial go-it-alone approach.
Energy commissioner Kadri Simson announced that as the TTF index — on which the wholesale price of gas in the EU market is based — is no longer representative of the reality of the EU’s energy market, an alternative benchmark needs to be developed. While the new benchmark would come into force by the next filing season, the discussion over the temporary mechanism to limit the price is still ongoing. In Prague, EU energy ministers did not reach consensus over the preferred form of capping the price of gas. The ball is now again on the Commission’s side.
As Germany’s 200 billion euros relief package increasingly came under fire from other EU Member States, Germany signalled that it is open to discussing joint debt to tackle the energy crisis. While loans similar to SURE are currently off the table for Berlin, it could be envisioned at a later stage. However, at this stage, Germany prefers to use existing financial tools notably the 750 billion euros recovery fund and the REPowerEU program, the government spokesperson said. “A large part of the funds is still available to support investments and reforms in the member states and can thus contribute to crisis management and ecological transition in the energy sector", he added.
DMA • Regulation 2022/1925 was published in the Official Journal of the EU on 12 October, roughly a month after the Council of the EU reached a deal with the Parliament on the text. In case you’re not familiar with Regulation 2022/1925, it’s the Digital Markets Act (DMA) — the EU’s flagship piece of legislation to govern how digital markets work.
The Regulation will enter into force on 1 November 2022. But serious business will only start six months later, in May 2023, when the Commission will designate ‘gatekeeper’ companies i.e., the digital behemoths whose market power the DMA aims to control. The gatekeepers will be subject to specific prohibitions and obligations on leveraging their market power in ‘core platform services’ to quash smaller competitors, such as using business users’ non-public data to compete against them, ranking their own products higher than those of others, or restricting interoperability with other services.
ENLARGEMENT PACKAGE • On 12 October 2022, the European Commission adopted its annual enlargement package providing an updated assessment of the progress made by the Western Balkans and Turkey on their path towards joining the EU.
The Commission reiterated its commitment to support reforms in the Western Balkans and recommended that Bosnia and Herzegovina be granted candidate status by the Council — provided that specific conditions are met by the country. Although Turkey was referred to as a key partner for the EU, Commissioner Varhelyi stated that “accession negotiations remain at a standstill as the assessment of the Commission confirmed that the negative trend of moving away from the European Union […] has not changed”.
The new package was adopted against the backdrop of Russia’s war in Ukraine, urging a renewed impetus in the enlargement policy of the EU. “Russia's brutal invasion of Ukraine brings into strong relief the importance of EU enlargement, which takes on a new geopolitical significance. It is a long-term investment into peace, prosperity and stability for our continent”, Joseph Borrell declared.
BORRELL’S RANT • HRVP Borrell broke the floor at the EU Ambassadors Annual Conference on 10 October about the role of the EU’s diplomacy in a “world of radical uncertainty”.
Among other considerations about China, Russia, and the USA — we highly recommend reading the speech — the EU’s top diplomatic envoy shared his concerns about the attractiveness of the European way of life.
“We think too much internally and then we try to export our model, but we do not think enough about how the others will perceive this exportation of models. Yes, we have the “Brussels effect” and we continue setting standards, but I believe that, more and more, the rest of the world is not ready to follow our exportation of model (...) For cultural, historical and economic reasons, this is no longer accepted”.
He also pressed EU delegations to be more reactive :
“You have to be on 24-hours reaction capacity. Immediately - something happens, you inform. I do not want to continue reading in the newspapers about things that happened somewhere with our Delegation having said nothing”.
EU’S TIGHT BUDGET • “The total exposure of the EU budget to potential future obligations more than doubled in 2021”: this is one of the conclusions from the European Court of Auditors’ (ECA) most recent report. In addition to highlighting increasing errors in spending from the EU budget, the ECA emphasised the risks posed by the war in Ukraine for the EU budget.
“At the end of 2021, Ukraine had outstanding loans with a nominal value of €4.7 billion under multiple EU programmes. The European Investment Bank has also granted Ukraine loans, covered by EU guarantees, to the value of €2.1 billion”, the report reads. The immediate risks of these loans is the potential issue of non-repayment, as the EU budget’s flexibility is currently “quite limited”, ECA president Tony Murphy said.
On 12 October, Ursula Von der Leyen explained that the EU’s multi-annual budget, which runs from 2021 to 2027, was not designed to deal with all the challenges the EU is facing at the same time — the war in Ukraine, inflation, or investments in semiconductors and defense to boost the EU’s autonomy in those fields.
Johannes Hahn, the budget commissioner, has started working on a plan to cope with the EU’s financial risks, which should lead to a review of the budget next summer.
EPPO LOOKS INTO COVID • The European Public Prosecutor's Office (EPPO), whose mission is to protect EU “taxpayers’ money from criminals”, is opening an investigation into the acquisition fo Covid-19 vaccines in the EU. Ursula von der Leyen has already been in the spotlight, after the European Commission was accused of maladministration by the European Ombudsman Emily O’Reilly over vaccine text messages — eventually deleted — with Pfizer CEO over vaccine procurement in 2021. Now EPPO is looking into the EU’s acquisition of Covid-19 vaccines, but did not make any further details public at this stage.
What we’ve been reading this week
As the Chinese Communist Party gathers for the week-long 20th National Congress, Jan Hoogmartens, in a piece for the Egmont Institute, reflects on the country’s current outlook and on how the EU should react.
Meanwhile, on the other side of the strait: Mario Esteban and Michael Malinconi of the Real Instituto Elcano take the pulse of the EU’s relation with Taiwan, which Josep Borrell wants to broaden, within the framework of the One China Policy.
The ECIPE’s Matthias Bauer makes the case for deepening the Single Market. Failure to do so could prevent Europe for catching up with Asia and America in innovation, productivity, and in fine in overall economic clout.
This week’s newsletter is brought to you by Ilaria Tucci, Matteo Gorgoni, Marianna Skoczek-Wojciechowska, Maxence de La Rochère and Augustin Bourleaud. See you next Tuesday!