Monday, 14 February 2022 10:48

Make content platforms pay for digital infrastructures, telecom CEOs say

The CEOs of Telefónica, Deutsche Telekom, Vodafone and Orange have called on the European Commission in an open letter to make large content providers contribute to the infrastructural investments.

The telecom heavyweights stressed that they had had to make massive investments to upgrade the capacity of their networks during the COVID pandemic because internet traffic surged due to the lockdowns.

“Continued investment is fundamental to ensuring the unrestricted access and participation of citizens in our digital society,” the letter said. “But the current situation is simply not sustainable. The investment burden must be shared in a more proportionate way.”

The argument is a long-standing one and has recently resurfaced in the run-up to the French presidential elections due in April.

French operators urge large platforms to contribute to network costs

French telecom operators presented a list of grievances and 15 proposals to candidates in the presidential race on Thursday (3 February), including the proposal for “major digital content providers” to contribute to the “costs of networks to ensure their economic and environmental sustainability”. EURACTIV France reports.

“As things stand, network operators are in no position to negotiate fair terms with these giant platforms due to their strong market positions, asymmetric bargaining power and the lack of a level regulatory playing field,” the letter added.

The operators estimate that social media, video streaming and gaming count for more than 70% of traffic. The services belong to a handful of hyper-scalers that manage to reap enormous profits. In contrast, the internet operators deem they are left to pay the cost for connectivity when profits have been steadily declining.

Zach Meyers, a senior research fellow at the Centre for European Reforms (CER), said, however, that “telecoms companies seem to be ignoring the fact that digital platforms are driving huge demand in telecoms networks – for example, many consumers are prepared to pay more for a 5G connection than a slower mobile network.”

The profitability of telecom companies has declined sharply in recent years, precisely at a time when they needed to make massive investments in upgrading their infrastructure.

“There is probably a degree of resentment, too – many telecoms companies have tried, and failed, to become serious providers of digital content, in an effort to avoid becoming low-profit utility companies,” Meyers added.

Since they cannot make a ‘viable’ return on investments, the CEOs warned, the providers might not have a business case to develop the digital infrastructure further.

The European telecoms pointed to examples from outside the bloc, notably that South Korea is currently discussing how to regulate the distribution of network costs following the traffic boost generated by the success of the series Squid Game.

The United States is considering a universal service with the contribution of online platforms. However, the US telecom market is much more concentrated than the European one, with higher tariffs that are in part reinvested in expanding network capacity.

“As Europeans are not ready to switch to a US model, having platforms contribute to infrastructure investments is a possible solution,” said Gérard Pogorel, an economics professor at Télécom Paris.

However, he noted that this solution “is not an easy one as defining the base of the contribution will be tricky.”

Similarly, the mechanism for distributing funding would be rather complex, as this kind of support is usually justified for investments that would not take place otherwise.

For Meyers, the EU’s Copyright Directive provides a precedent for forcing platforms to pay a share for the services they provide. However, such an intervention would be motivated only by strong evidence that it would benefit consumers.

“But since telecoms companies have been complaining about their low-profit margins, there is a real risk that their shareholders, rather than consumers, would be the main beneficiaries,” Meyers said.

Another major obstacle is how this intervention would be conciliated with the principle of net neutrality. For professor Pogorel, all internet services would then have to contribute in proportion to their network usage, which might result in significant red tape.

Alternatively, Pogorel suggested piggybacking on the minimum corporate taxation, with part of the additional revenues reinvested in digital infrastructure capacity. However, that might not necessarily cover the right players, as traffic-heavy platforms like Netflix are not necessarily as profitable as Google or Facebook.

“If we don’t fix this unbalanced situation Europe will fall behind other world regions, ultimately degrading the quality of experience for all consumers,” the CEOs wrote.

For the telecom providers, making Big Tech pay their fair share would also lead to more sustainable use of digital technologies. Large online platforms will not have an incentive to optimise the data they use if they do not pay any economic cost for it.

A Meta spokesperson declined to comment on the matter while Google and Microsoft did not reply to EURACTIV’s request for comment by the time of the publication.