European telco CEOs again pushed their demand for "fair share" payments from a few hyperscale app providers in an open letter to EU officials. Some might argue the demand is anything but fair, since internet domains already compensate each other for asymmetrical traffic flows.
The argument is that mobile and fixed operators do not have the capital to build the next generation of connectivity networks. The letter says “at least €174bn of new investment will be needed by 2030 to deliver the connectivity targets.”
And the CEOs say they cannot do so. “The telecoms sector is currently not strong enough to meet that demand, with many operators barely earning their cost of capital,” the letter argues.
Ignore for the moment “why” such claimed paltry returns exist, and whether it is not the CEOs of those firms whose job it is to boost returns, rather than others in the value chain who must do so.
Ignore for the moment the notion that “those companies that benefit most from the infrastructure” are somehow obligated to reduce their profits to boost the profits of the ISP participants in the value chain. Some industries have low margins; others have high margins.
The fact that all industries use seaports, airports, rail and road transport, electricity, wastewater systems, education and other infrastructure in and of itself tells us little about industry business models.
Most people and businesses use the internet. That, in itself, does not drive business models for users. And most of the traffic asymmetry exists because an ISP’s own customers have asked for delivery of content from sources on other domains.
Ignore for the moment the other calls for regulatory relief the industry has been asking for, such as more freedom for mergers that reduce the number of service providers operating in any market.
Ignore for the moment the actions service providers might undertake on their own to improve their operating and capital investment models and practices; the industrial policy favoritism of domestic firms, compared to foreign firms in the value chain or the value of scale economies (most observers might say economies of scale are clear enough for app providers, but arguably not so important for internet access providers).
Every retail business and consumer connected to the internet already pays the asked-for tariffs for such access, with the asked-for usage payments for usage. So some might argue ISPs want to be paid twice: once when traffic enters their domain and once when it leaves their domains.
Internet service providers could do what all other businesses do when faced with cost increases: raise prices, change product attributes or make other changes so the business model remains intact.
At the business-to-business level, internet domains already negotiate interconnection agreements for excess traffic “created” by either domain that is party to a bilateral agreement. So Netflix, Apple, Meta and Alphabet, for example, already pay fees to large ISPs for traffic asymmetries.
Here are some examples of interconnection payments already made by hyperscale app providers to just a few ISPs.
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