As the European Union considers new laws that would make a few hyperscale app providers pay fees to providers of internet access infrastructure, seven EU countries warned the European Commission against any possible hasty decisions.
The letter was sent by the Netherlands, Denmark, Estonia, Finland, Ireland, Sweden, and Germany.
Telefónica, Deutsche Telekom, Vodafone and Orange are pushing the EC to mandate the new payments.
The European Union declaration on digital rights act calls for a framework where "all market players benefiting from the digital transformation…make a fair and proportionate contribution to the costs of public goods, services and infrastructures".
In other words, big app providers who impose most of the traffic demand on access networks should help pay for the access infrastructure.
It is not surprising that infrastructure cost burden sharing is sought by internet access providers, who argue they must invest based on demand created by third parties. Says Orange, “the investment burden must be shared in a more proportionate way.”
“Today, video streaming, gaming and social media originated by a few digital content platforms accounts for over 70 percent of all traffic running over the networks,” Orange argues. “ Digital platforms are profiting from hyper scaling business models at little cost while network operators shoulder the required investments in connectivity.”
It is not a new argument. Infrastructure cost sharing has been talked about since at least 2006.
The document also calls for “developing adequate frameworks so that all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans”
In other words, the argument is that access providers need some form of revenue sharing with the app providers using the networks.
We might take that as evidence that the connectivity service provider market is broken, or breaking.
If so, what is the reason and what are the solutions? Those questions are inevitable as the European Telecommunications Network Operators’ Association continues to argue before EU regulatory bodies that some form of revenue sharing (taxes, essentially) need to be levied on hyperscale app providers to make the service provider business model work.
The basic argument is that hyperscalers impose most of the costs of building and operating an access network, but that internet service providers cannot “recover their costs” because of asymmetric bargaining power with the hyperscalers.
Not to be flippant, but that is akin to electricity providers arguing that they do not have the power to levy fees on the manufacturers of air conditioning or heating systems, light bulbs or lamps to support the electricity delivery business model.
Electrical utilities recover such fees--and support their business models--by charging customers for consumption of electricity. Historically, so did telcos, though the role of government subsidies and price regulation also was key.
As always, the problem is complex and not simple to resolve. Large ISPs argue that their business models are unworkable without direct revenue contributions from third parties. That is the gist of the argument.
So the issue is how to remedy the problem. And ISPs might not like the eventual answers.
One potential answer is to nationalize the former incumbent telcos, making them government-owned entities again. Another answer is to allow the markets to return to monopoly structures by allowing most of the competing firms to fail.
Nor can big ISPs avoid questions about the soundness of their own cost structures; marketing practices and efficiency. Ignoring for the moment differences in market scale, U.S. ISPs between 2014 and 2020 reduced the amount of capital investment; European telcos saw capex burdens grow.
To be sure, some of the change might be transitory. Japan’s costs climbed while South Korea’s capex first climbed, then dropped, presumably because of the spike caused by early 5G deployment.
Still, one “easy” solution is for ISPs to charge their own customers based on volume consumed, as remains the case for electricity, fresh water, natural gas. In fact, nearly every commodity purchased by consumers is based on volume of consumption, whether that is groceries, gasoline or clothing.
Eventually, that basic line of reasoning might eventually lead back to price controls and rate regulation, which ISPs almost always oppose. But inability to charge based on volume of consumption is among the root causes of business model instability.
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