Should big tech be forced to pay telcos for network use?

Could major US tech firms soon be paying their dues to telcos to fund network infrastructure upgrades in Europe? Perhaps, if the EU gets its way, but is this a vital new source of revenue for connectivity providers, or a profit-leeching protection racket?

Shock, horror! The EU is reportedly set to break the big telco taboo and ask whether America’s leading tech firms – the likes of Meta, Netflix and YouTube – should contribute to the upkeep costs of European telecoms networks.

Earlier this month, Bloomberg revealed a document from an anonymous source within the European Commission, dated from April, outlining plans by Thierry Breton, Commissioner for Internal Market of the EU, to quiz telcos as to how higher demand is impacting them.

The questionnaire is set to ask telcos how much traffic has increased on their networks in the last three years, and how much this increased demand is costing them. In turn, big tech will be grilled over their own costs, their relationships with operators, and “any signs of ‘market failure’ in how content is delivered on networks”, according to Bloomberg. The intention being to develop a renumeration policy, the proceeds of which would be reinvested into networks for vital upgrades.

The move is the product of extensive lobbying by the European Telecommunications Network Operators’ Association (ETNO), which reported in May that over 55% of all network traffic is being produced by this small but powerful cadre of companies “with little or no economic contribution to the development of national telecom networks.”

Now, 16 of Europe’s biggest telcos, including Deutsche Telekom and Telefónica, have joined those calls in their boldest move yet by signing a statement calling on big tech to subsidise their €50 billion annual infrastructure costs.

At the start of the Czech Presidency of the EU in June, ETNO and the GSMA made a joint declaration calling on ministers “to stand firm in supporting and advancing the principle of ‘fair and proportionate contribution’” to modernising and upgrading European networks.

ISPs have long argued that the GAFAs (the likes of Google, Apple, Facebook and Amazon) act as “free riders”, not only taking up a great deal of network bandwidth, but using this to offer competing services such as free messaging and subscription streaming, eating into the revenues of telcos.

Google’s President for EMEA, Matt Brittin, took umbrage with the 10-year old idea of “sender pays” over the telcos’ notion of “fair contribution”, stressing the need for an open internet. He argued that Google does in fact spend its fair share in the form of infrastructure such as datacentres and subsea cables, and cloud.

At the start of the COVID pandemic, streaming platforms such as Netflix and YouTube slashed the quality of video, per the request of Breton, so as to not “break the internet”, while Facebook and Messenger were put under strain by usage at double the usual levels.

Limiting use is one thing, but the idea of billing both data consumers and producers is an unprecedented one – after all, your gas provider doesn’t also bill your boiler maker for doing the burning. But with talk of windfall taxes on utilities firms to ease the ongoing energy crisis, the notion that some revenue should be redistributed from those most benefitting to those in need, is certainly gaining traction.

It makes sense for telcos to skim some revenue from these companies, given that they are otherwise unable to monetise the traffic that they shoulder on their networks, and the digital services providers ought to pay their fair share for the infrastructure that their own massive fortunes are built upon to ensure they can keep generating their own incomes.

Big tech evangelists, though, protest that such a policy would undermine net neutrality, a source of much heated debate over the last few years that reached fever pitch in 2017, when then-Chairman of the FCC, Trump appointee Ajit Pai, took a hatchet to provisions put in place under the Obama administration.

However, an executive order signed by Joe Biden to reintroduce net neutrality has hit a roadblock, with the FCC’s board of commissioners split on the issue. Part of a legal offensive by the Democrats to restore broadband’s status as an essential service, and permitting the FCC to ban discriminatory practices, this is at odds with the notion that tech firms should pay it forward.

Meanwhile, South Korean telco SK Broadband decided to sidestep the legislative dance, suing Netflix in October 2021 for the Squid Game-fuelled surge in traffic it placed on networks, which they estimated to have cost them ₩27.2 billion (approximately £16.9 million) in 2020 alone.

At the time, Dean Garfield, Netflix's vice president for global public policy, accused SK Telecom of “[using] its dominance to extract an arbitrary payment from streaming services.”

According to Bloomberg, the European Commission plans to finalise the questionnaire in the coming weeks, though is unlikely to begin its consultation in earnest until next year, as part of a broader look at the relationship between US firms and Europe that may also include metaverse regulation.

With the outlook for the global economy looking increasingly uncertain, Google pausing hiring and Netflix cutting jobs following a disastrous earnings call this summer, telcos cannot necessarily depend on these firms to top up their budgets going forward.

Though no telco is likely to turn their nose up at additional income, they must find new ways to boost and protect revenues, ensuring that support for their connectivity services continues. 5G, automation, and the Internet of Things should open up lucrative new paths for service providers to supplement their revenues without depending on industry handouts.