European telecom operators are demanding that tech companies pay them for the traffic they send over their network. This would be equivalent to energy companies trying to collect fees from appliance makers for the energy use of washing machines, while consumers are already being charged for the actual amount of energy used to do their laundry.
The telecoms lobby’s campaign is fundamentally misguided, here’s why.
Europe’s telecom incumbents have launched an impressive campaign to revive a decade-old pipe dream: Popular online content and service providers should pay telcos for the traffic they send over their networks. But haven’t telcos already been paid by their end customers who want access to enjoy Netflix and Spotify? Sure, but telcos argue they struggle to make a return on investments in the highly regulated and saturated EU market. Hence, they demand payments at both ends of the cable.
This argument has been debated before and it has been rejected before. Last time we discussed this, some eight years ago, then European Commissioner Neelie Kroes firmly opposed the idea. She explained how the situation of European telcos is not the ‘fault’ of over-the-top tech companies. In fact, “OTT players are the ones driving digital demand – demand for [telecommunication] services!” Kroes explained: “Today, all EU homes have broadband coverage. […] They are demanding greater and greater bandwidth, faster and faster speeds, and are prepared to pay for it. But how many of them would do that, if there were no over the top services? If there were no Facebook, no YouTube, no Netflix, no Spotify?”. The body of European telecom regulators, BEREC, came to a similar conclusion.
The reality remains the same: The more people using online services, the higher demand for internet access services becomes. More demand ultimately turns into added revenues for telecommunication providers, which explains why “revenues of the internet access connectivity segment have grown at 11% per year since 2015 as more people and devices are connected to the internet,” with global telecom revenues increasing “from $585 billion in 2015 to $988 billion in 2020,” according to a recent GSMA report.
Traffic growth is a good thing for telcos. If Netflix and other popular apps in fact were the root cause of telcos’ challenges, as they claim, then why are telcos incentivising their customers to generate more of that traffic and sell their (premium) services on the back of streaming platforms?
This is all the more surprising as telecom operators claim that the exponential data traffic growth “leads to higher costs for EU telcos.” That is incorrect. In fact, networks in Europe have remained resilient also during the pandemic, and costs have plateaued or even declined. As European regulators group BEREC has stated, “prices for transit or [Content Delivery Network] (CDN) services are still declining. […] The price decline for transit services indicates that the market is highly competitive […]. Costs of delivering data packets (on a per unit basis) continue to decline.”
Over the years, large online service and content providers have also made significant investments to help reduce traffic costs and bring content closer to European users, including Google’s subsea cables, Meta’s MAREA project, or Netflix’s investments in Open Connect CDN.
More concerning is the obvious conflict with net neutrality rules. EU legislation rules guarantee that consumers can access the content and services of their choice in a non-discriminatory manner, and that all traffic is treated equally. The very idea of charging some online services and not others is, by definition, discriminatory. And it is the same principle which European Member States and the European Commission have reiterated to uphold in the recent Declaration for the Future of the Internet.
BEREC warned a decade ago that ETNO’s similar proposal ran “the real risk shifting the balance of negotiating leverage between market participants and inducing an abuse of market power by telecoms carriers.” What happens if an online service cannot pay what a telco demands? Will the telco slow down the service or remove it from the Internet? Hopefully, Europeans will not be forced to give up popular streaming and online messaging services for the telcos’ own services.
The internet traffic telcos want to tax includes traffic from the wider European economy. What may be perceived as “Google traffic” or “Apple traffic” would in fact capture traffic to all websites via Chrome or Safari. The same goes for the many European companies, such as Spotify, which use cloud services provided by leading tech companies. So many European organizations would end up paying this new EU internet tax.
To sum up, this telco demand has been debated before, it has been rejected before. The reality is that traffic growth is positive, as long as telcos manage to charge their own customers for their data consumption. Hopefully, regulators will once again analyse this very demand carefully and consult all stakeholders given the risk of severe side effects.