Who Should Pay for Internet Infrastructure? Commission Wants to Know
But also — Northern Ireland Protocol, Ukraine, China, TikTok, EU ETS
Hi! This is Monday, 27 February 2023, and here’s the news you need to start your week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
On February 23, the Commission launched its major consultation on the contribution of Big Tech to the financing of telecom network infrastructures. This consultation is part of a set of initiatives put forward by the Commission to improve the EU's Internet connectivity.
TELCOS • The debate is not new. Major telecommunications operators (‘telcos’) argue that Big Tech — Netflix, Amazon, Alphabet and Meta, to name a few — significantly fuel connectivity needs without contributing to the financing of network infrastructures.
Telcos base their claims on a report written for ETNO (the European Telecommunications Network Operators Association), according to which EU telecom companies "have invested €500 billion in fixed and mobile networks over the past 10 years."
According to this report, a small number of OTT (Over-The-Top) services now account for 55% of all Internet traffic. Telcos therefore want the large companies that provide these services to pay their "fair share" of investments in network infrastructure.
BIG TECH • As for Big Tech, they believe they already contribute to the financing of infrastructure through their investments in submarine cables and data centers. In total, they claim to invest 22 billion euros per year in these infrastructures in Europe. In comparison, Big Tech are estimated to be responsible for 15 to 28 billion euros in annual network costs, according to a study commissioned by Deutsche Telekom, Orange, Vodafone and Telefonica.
According to the VOD Coalition, which features streaming platforms such as Netflix and Paramount, putting more pressure on Big Tech could lead to a decrease in their investment in content.
Another argument could be particularly effective with the Commission: the principle of net neutrality. Enshrined in EU law since Regulation 2015/2120 and reaffirmed by the Court of Justice since then, it translates into an obligation to ensure equal access to the network and non-discriminatory treatment of Internet traffic.
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 impacted.
In its press release, the Commission was careful to specify its "strong commitment to protecting a neutral and open Internet".
CONSULTATION • Reacting to the Telcos’ campaign, the Commission had promised to open a consultation on this thorny issue. It is now done with the launch of the "exploratory" consultation on the future of connectivity and telecom infrastructures. You can already contribute to the consultation via this link.
In view of all the studies and counter-studies carried out on the subject, the Commission recalls that "this is a complex issue that requires an exhaustive analysis of the underlying factual and quantitative data before deciding whether further action is necessary".
WHAT TO DO • The EU's connectivity goals are ambitious and call for significant investment in the coming years. The bloc aims to accelerate the deployment of broadband networks such as fiber and 5G, which are currently considered too expensive and too slow to implement.
The goal is to connect every European citizen to high-speed broadband by 2030, using fiber at home or 5G on the move, with a view to future innovations such as autonomous cars and the Internet of Things (IoT).
In addition to investments, several regulatory changes are necessary to achieve these objectives. These have been detailed in the Commission's press release.
GIGABIT ACT • First, the Commission announced a revision of the 2014 Broadband Cost Reduction Directive (BCRD) which has a mixed record due to divergent implementation across states.
This revised directive — Gigabit Infrastructure Act — should accelerate the deployment of telecom equipment through the simplification and digitization of procedures, but also through better coordination between the various operators involved — which amounts to nearly 70% of the cost of deploying telecom networks.
Other measures such as the obligation to pre-equip all new buildings with fiber are also included in the text.
GIGABIT RECO • A second instrument is the Gigabit Recommendation, a soft law text addressed to national regulatory authorities.
It aims to strike a balance between the legitimate interest of operators to freely dispose of their own infrastructure — concretely, cables and antennas — and the need to ensure that these operators maintain access to essential infrastructure to competitors.
WHAT NEXT? • The Gigabit Act must now be considered by the Parliament and the Council, while the Gigabit Recommendation must be approved by BEREC (Body of European Regulators for Electronic Communications). As for the consultation, it is open for 12 weeks on this page.
For more information on this set of initiatives, we suggest you consult the Q&A made by the Commission.
In Case You Missed It
BREXIT • Negotiations on the Northern Ireland Protocol between the UK and the Commission are getting serious. Ursula von der Leyen will meet with Rishi Sunak in London later today, a sign that a deal is imminent — UK MPs have been asked to be present in Westminster today.
While the content of the deal remains unclear, Rishi Sunak assured the Irish Unionist Party that he succeeded in convincing the Commission that Westminster should have control over the level of VAT and the state aid regime applicable in Northern Ireland. In the existing protocol, the rules that apply to Northern Ireland in these areas are those of the EU.
As a reminder, the Northern Ireland Protocol is part of the EU Withdrawal Act of 2018. In order to avoid re-establishing a physical border between Ireland and Northern Ireland post-Brexit, this protocol provides that checks on goods are carried out between Northern Ireland and the UK. In return, several EU rules on the internal market and customs union continue to apply to Northern Ireland.
Unionists believe that the protocol creates a "democratic deficit", as EU rules apply to Northern Ireland while the country is absent from the decision-making process that produces them. The CJEU has jurisdiction over disputes involving EU law, which is also criticised by the DUP.
Rishi Sunak has pledged to improve the situation with the Commission. However, the Prime Minister's room for manoeuvre is limited by the DUP's demands, the pressure Eurosceptic Conservatives, and the upcoming local elections in early May.
UKRAINE • One year after Russia invaded Ukraine, the Council reached an agreement on a tenth set of sanctions against Russia. This new set of sanctions adds 121 individuals and entities to the EU sanctions list, including three banks that will be excluded from the SWIFT banking messaging system — Alfa-bank, Rosbank and Tinkoff Bank.
However, member states struggled to finalize the sanctions package. There was a strong disagreement over the progressive ban on Russian synthetic rubber used in the tyre industry. Poland felt that the rubber import quota was too high, while Italy and Germany did not.
Although Poland's demands on rubber were not accommodated, the member state did manage to negotiate tougher sanctions on individuals involved in the illegal deportation of Ukrainian children. "This was our top priority," Andrzej Sados of Poland's permanent representation to the EU told Politico.
CHINA • On the first anniversary of Russia’s invasion, the Chinese foreign ministry released a 12-point paper “outlining its position on a political settlement” to what it terms as the “Ukraine crisis”, calling for a ceasefire and a “return to negotiations”.
This has been criticised by the head of NATO, Jens Stoltenberg, as Beijing has not officially condemned the invasion. European Commission President von der Leyen stated that China’s stance was “anything but neutral”. US Secretary of State Blinken also commented that if the first point regarding “respecting sovereignty” was complied with by Russia, “the war would end tomorrow”.
This comes at a moment where the US claims that China is “considering sending arms and other lethal aid” to Russia, but NATO states that it has not seen “any actual delivery of lethal aid” so far. Chinese Assistant Foreign Minister Hua Chunying replied by accusing the US of benefitting from the war.
China has been trying to delicately manage its relations with Russia and its European trading partners since the start of the invasion. On 22nd February, China’s top diplomat, Wang Yi, met with Putin, Russian foreign minister Sergei Lavrov and security council secretary Patrushev as part of a diplomatic tour of Europe.
Wang made no reference to the “no-limits” partnership announced by China and Russia shortly before the invasion, falling short of a “full endorsement”, but mentioned that both sides would deepen “political mutual trust and strategic cooperation”. At the same time, on 24th February, the Chinese Foreign Ministry appealed directly to the EU, stating that China “is willing to make joint efforts with the EU and continue to play a constructive role in Ukraine”.
China’s economic support for Russia has remained unwavering in the face of Western sanctions. Since the beginning of the invasion, Beijing has substantially increased its purchase of Russian energy and foodstuffs — with Russian imports increasing by 43% in 2022 to $114 billion — and increased exports of Chinese electronics, cars and microprocessors.
TIK TOK • A loss of 30,000 subscribers for TikTok, but quite a big political signal. Officials at the Commission, Council, and European External Action Service (EEAS) have been mandated to uninstall the app by 15 March. The ban applies to professional devices, but also to personal ones if work-related applications have been downloaded onto them. Tiktok, and its Chinese owner ByteDance, are regularly criticized as being digital trojan horses acting on behalf on the Chinese Communist Party. TikTok has 125 million users in the EU.
EU ETS • On 21 February, the price of the EU Allowances (EUA) for carbon emissions rose to a record high of 101.25 euros per metric tonne of CO2. The FT reports that the record price is more than just symbolic, since it can finally start making a real difference in companies’ behaviour. However, industrialists warn that an increase in carbon prices will affect the competitiveness of the EU’s manufacturing sector at a time of great fragility for the EU’s economy.
First launched in 2005, the EU ETS uses a ‘cap and trade’ mechanism which currently covers emissions from industrial installations that are power- and carbon-intensive, as well as emissions generated by aviation. In total, about 36% of the EU’s total greenhouse gas emissions are subjected to the market instrument.
The price of carbon under the EU ETS had struggled to surpass the 30 euro/tonne of CO2 mark for the greater part of its history. In light of this, the Commission wishes to amend the trading system as part of its ‘Fit for 55’ package. To achieve a 43% reduction compared to 2005 levels in emissions from sectors covered by the EU ETS, the Commission is focusing on three elements:
an accelerated reduction in the overall number of annual EUAs available for companies (thereby increasing the price of those allowances),
targeted rules to address the threat of carbon leakage in sensitive sectors of the economy, and
the creation of two funds (which will receive a portion of the money raised from the sale of EUAs) to finance innovation for low-carbon alternatives for the industrial and power sectors covered by the EU ETS.
What we’ve been reading
The CEPR has published a book (online access is free) to mark the thirty years that have elapsed since the ERM crisis. Edited by Giancarlo Corsetti, Galina Hale, and Beatrice Weder di Mauro, the contributions it gathers are relevant to understanding the architecture and history of the single currency, as well as its prospects for the future.
A study by Lennard Welslau and Georg Zachmann for Bruegel finds that contrary to what the Commission’s own research suggests, the Union is becoming more dependent on a limited number of suppliers for some strategic imports, especially in high-end electronics.
This week’s newsletter is brought to you by Clément Albaret, Ysabel Chen, Mark Soler, Maxence de la Rochère and Augustin Bourleaud. See you next Monday!