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January 5, 2023

Should Big Tech pay telco network costs? Opposition grows to Europe’s ‘fair share’ plan

The European Commission and telco operators are facing more criticism around fair share costs.

By Sophia Waterfield

A trade association for internet infrastructure providers has told the EU that proposals to pass network costs on to Big Tech companies would be “detrimental to the correct functioning of Internet connectivity”. The so-called “fair share” proposals could weaken critical infrastructure, the group says.

In a letter to European competition commissioner Margarethe Vestager and Thierry Breton, commissioner for internal markets, the European Internet Exchange Association (Euro-IX), which represents infrastructure companies such as Extreme Networks, Equinix and others – voices its concerns that bringing in fair share costs to Big Tech companies such as Google, Amazon and Netflix could increase the costs of concluding interconnection agreements, inhibit networks choice and reduce interconnection density and quality of service to the end user.

Telecoms networks have been upgraded across Europe in recent years. Telcos want Big Tech to help foot the bill. (Photo by panumas nikhomkhai/Shutterstock)

It also said that the potential regulatory updates could replace the current market-based model with a “highly regulated interconnection market”, which would result in regulations taking precedence over “technical necessity” or providing high-quality internet for European citizens.  

Fair share costs are a complex issue for the EU

The EU has been under pressure from network operators to force Big Tech companies to pay some of the costs of upgrading and maintaining networks. The operators argue that as companies such as Netflix and Meta account for much of the traffic on networks and profit from their existence, they should be made to fund a portion of their upkeep. Breton has announced that a public consultation will be launched around “fair contribution” in 2023, and says he wants an open dialogue with the public and stakeholders. 

“The topic of a potential need for a ‘fair contribution’ to network costs by content providers is a complex issue and any decision should be made by understanding the underlying facts and figures,” an EU spokesperson told Tech Monitor

The EU, however, knows that there is a need to increase investments to create modern and resilient networks across its countries. “The issue of fair and proportional contribution to the costs of public goods, services and infrastructures is part of this broader reflection,” the spokesperson adds. 

On 14 July 2022, EU co-legislators reached a political agreement on the proposal for “the Path to the Digital Decade policy programme”. within this proposal, the EU made it clear that “all market actors benefiting from the digital transformation should assume their social responsibilities and make a fair and proportionate contribution to the public.”

European telecom operators back Big Tech to pay for access to consumers

The letter from Euro-IX says network operators could be looking to profit from rule changes.

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It refers to a proposal titled “Sending Party Network Pays (SPNP) from the European Telecom Network Operators Group (ETNO) as the basis for its concerns. The proposal from 2012 wants to replace the “current internet interconnection model” that relies on voluntarily agreed peering and transit agreements, with a “mandatory call termination settlement model”.

This model is described by Euro-IX as a regulated mechanism that has never been applied to the internet before, and only applies to “old telephony networks”. 

“This proposal, promoted by some large European telecom operators, aims to capture value from global content networks by allowing access network operators to impose charges on content providers for access to their customers, network end-users,” says the letter, signed by Bijal Sanghani, managing director of Euro-IX on behalf of its members. 

“The SPNP model would simply lead large players exploiting the last-mile telecom bottleneck to increase monopoly profits while leading to unnecessary and distorting regulation of what is otherwise a very competitive market.” 

No ‘single bullet’ to solve network cost conundrum

The reality is that telcos have been investing in modernising networks for 5G and have not seen a return on investment. One of the ways they can claim the money back is with new revenue streams. 

Paolo Pescatore, analyst and founder of PP Foresight, says that the ever-increasing dominance of the Big Tech companies has attracted strong interest among regulators around the world, not just in Europe. 

"While many regulators including the EU have been unsuccessful in curbing their dominance through antitrust cases, attention has quickly turned towards legislation," he says. 

Paired with the telcos calling for action to be taken, it's no surprise that the fair share proposals have been mooted. "Telcos continue to invest billions in acquiring costly spectrum and rolling out next-generation networks," Pescatore says.

"Margins have been squeezed as users have flocked to embrace services provided by the Big Tech in preference over telcos. This in turn has driven telcos to believe that the Big Tech companies are freeloading on their networks."

He adds that providers such as Netflix already pay interconnect fees, but while telcos build the networks and sell access, content providers are also needed for them to thrive. 

"Connectivity and content are so intertwined and both are needed for each to thrive," he says. "There’s no one single bullet." 

Telcos have not addressed concerns around fair share costs 

While it's clear telcos have been the biggest supporters of fair share costs, there are worries that they haven't addressed the issues surrounding the proposals. 

David Abecassis, a partner at Analysys Mason, explained to Tech Monitor that there are several position papers from "virtually all other stakeholders in the internet ecosystem" that document a "wide array of issues".

"Whilst network costs are significant, they do not scale with traffic - we have shown that globally, network costs are broadly stable over time, even as traffic has tripled," he says. "Operators are more than able to carry more and more traffic at very low marginal cost." 

The analyst also says that it's important to observe that over 90% of traffic is carried on fixed, mostly fibre-based networks, which raises questions about whether the telcos, many of which operate mobile networks, should be compensated: "These [fibre] networks can carry orders of magnitude more traffic than they currently carry, with progressive upgrades over time," Abecassis says.

Read more: Is the telecoms industry really in freefall?

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