There are platitudes and there are threats and opportunities in business.
When European Commission Internal Market Commissioner Thierry Breton says “we need to leave behind our long-standing perception of the way (communications) networks operate,” ecosystem participants have to take notice.
Speaking at MWC Barcelona, Breton reiterated some themes heard often these days: “telecommunication networks transforming into platforms;” copper networks are being replaced by optical fiber media; virtual reality is coming; Web 4.0 is coming; coming connectivity networks will be a blend of “transmission, storage and computing.”
None of that is too surprising when uttered by a regulator. But ecosystem participants are right to pay attention when a regulator talks about a “radical shift” of business models, specifically questioning “the traditional model of vertical integration.”
To be sure, in context, Breton was referring to the “digital industry” in a broad sense. Referring specifically to connectivity providers, Breton said “telcos are demonstrating that they are on their way to become service platform providers.”
Specifically, Breton seemed to be referring to telcos “becoming network-as-a-service providers.” None of that is necessarily a radical shift. In fact, most service providers see “network as a service” as an ancillary revenue stream, and not necessarily as a “revolutionary” move.
The heart of the matter addressed in his speech is funding mechanisms for gigabit infrastructure, specifically proposed new concepts that would have a few hyperscale app providers paying access providers for the right to land traffic on those networks.
Those of you familiar with communications network interconnection practices might not find that terribly controversial, in one sense. Public service providers (telcos) always have compensated each other for landing traffic on interconnected networks.
So internet service providers peer with each other when traffic is roughly equal, outbound and inbound, or assess fees when traffic is asymmetrical.
Others might find the notion highly controversial. Interconnection applies to asymmetrical inbound traffic between public carriers. The proposed new rules taxing content providers would treat a few hyperscalers as though they were public carriers, even when it is ISP customers who are initiating the sessions and causing the inbound traffic loads.
Historically, any access provider would bill its own customers for use of the network, using both flat fee and usage-based charging mechanisms based on its own customers’ demand. “Use more, pay more” is the general idea. That has included use of other service provider networks to terminate traffic off the local network.
Hyperscalers are not public networks. Nor do they initiate access network customer requests. Instead, each ISP’s own customers create the inbound traffic load. In virtually every other industry where usage of network resources happens, customers pay for consumption.
That applies to toll roads, seaport access, natural gas consumption, electricity use, wastewater facilities or airport landing gates, for example.
In this case, as in the other instances, ISP customers are driving the inbound demand, invoking video content, for example, as they might in earlier times have made long distance phone calls, or sent text messages. When customers have paid for linear video subscriptions, the networks fulfilling that demand were not charged because network resources were used. Instead, the subscribers paid.
In the end, consumers wind up paying for all costs. In the case of taxes on a few hyperscalers for landing traffic, it will be the users of those apps who wind up paying. But that is the point.
ISPs want more money for building their networks and they want somebody else to pay for upgrades. That “somebody else” is users of a few hyperscale apps or business partners of the firms offering those apps. That includes advertisers, merchants and end users.
And then there are the industrial policy drivers. European and East Asian firms would like to promote indigenous suppliers at home in their battle against competitors based in the United States. Taxes on a few U.S. hyperscalers are viewed within that context by policymakers as well.
