Telcos urge EU to charge Big Tech for internet

Tensions between European telcos and US tech giants have escalated as telecom executives press regulators to allow the digital giants to shoulder some of the costs of building the internet’s backbone.

European telcos argue that the big Internet companies, mostly American, have built their businesses on the multibillion-dollar investments operators have made in Internet infrastructure.

Google, Netflix, Meta, Apple, Amazon, and Microsoft generate almost half of all Internet traffic today. Telcos believe these companies should pay a “fair share” of fees to account for their disproportionate infrastructure needs and help fund the rollout of next-generation 5G and fiber networks.

Last month, the European Commission, the EU’s executive body, launched a consultation examining how to tackle the imbalance. Officials are seeking opinions on whether to require direct investment from Internet giants to telecom operators.

Big tech companies say it would be considered an “internet tax” that could undermine net neutrality.

Top telecoms executives came out to tech companies at Mobile World Congress in Barcelona.

They bemoaned spending billions laying cables and installing antennas to handle the growing demand for the Internet without matching investment from Big Tech.

“No telecom, no network, no Netflix, no Google,” Michael Trabia, chief technology and innovation officer at France’s Orange, told CNBC. “So we’re absolutely vital, we’re the entry point to the digital world.”

In a Feb. 27 presentation, Tim Hotges, CEO of German telecommunications group Deutsche Telekom, showed the audience a rectangular diagram representing the scale of market capitalization among various industry players. US giants dominated this map.

Hotges asked the audience why these companies can’t “contribute at least a little bit to the effort and the infrastructure that we’re building here in Europe.”

Howard Watson, BT’s chief technology officer, said he saw merit in paying big tech players.

“Can we work on a two-way model, where the customer pays the operator, but also the content provider pays the operator?” Watson told CNBC last week: “I think we should look into it.”

Watson drew an analogy to Google and Apple’s app stores, which pay developers a cut of in-app sales in exchange for using their services.

Efforts to introduce network fees have been heavily criticized, especially by technology companies.

Speaking at MWC on Feb. 28, Netflix CEO Greg Peters labeled proposals to force tech companies to pay Internet service providers for network costs a “tax” on Internet traffic that would have a “negative impact” on consumers.

Requiring the likes of Netflix, which already spends a lot of money on content delivery, to pay for network upgrades would make popular shows more difficult to develop, Peters said.

Tech companies say carriers already receive money to invest in infrastructure from their customers, who pay them through call, text and data charges, and that by asking Internet companies to pay for the carriage, they are effectively asking to pay twice.

Consumers could end up absorbing the costs required by digital content platforms, and that could ultimately “have a negative impact on consumers, especially at times of price increases,” Google EMEA chief Matt Brittin said in September.

Tech companies also say they are already investing heavily in European telecommunications infrastructure, including undersea cables and server farms.

The “fair share” debate has raised some concerns that the principles of net neutrality, which say that the Internet should be free, open, and not favor any one service, could be undermined. Telecom companies insist they are not trying to undermine net neutrality.

Tech companies worry that those who pay more for infrastructure may get a better network.

Google’s Brittain said fair share payments “could potentially turn into measures that effectively discriminate between different types of traffic and infringe on the rights of end users.”

One proposal is to require individual deals with Big Tech companies, similar to Australian licensing models between news publishers and internet platforms.

“This has nothing to do with net neutrality. This has nothing to do with network access,” Telenor CEO Sigve Brekke said in an interview with CNBC on February 27. “This has to do with the cost burden.”

Operators complain that their networks are overloaded by the huge output of the tech giants. One solution is to stagger content delivery at different times to ease the network traffic load.

Digital content providers can more efficiently schedule the release of a new blockbuster movie or game, or compress the data provided to relieve pressure on networks.

“We can just start by having a clear timeline of when to expect and being able to have a dialogue about whether companies are using the most efficient way to move traffic and can some non-time critical content be served at different times. ? Mark Alera, CEO of BT’s Consumer Division, told CNBC.

“I think it’s a pretty, relatively easy debate, actually, although a lot of the content is global, and what might be busy in one country, might be busy in another country. But I think the local level is certainly a really easy discussion.”

He suggested that the concept of net neutrality needs a bit of an update.

The “fair share” debate is as old as time. For more than a decade, telcos have complained about messaging and media services such as WhatsApp and Skype “free riding” on their networks.

There was one notable difference at this year’s MWC: a senior EU official in the room.

The European Commission’s head of internal markets, Thierry Breton, said the bloc must “find a financing model for the huge investments needed” to develop next-generation mobile networks and emerging technologies such as the metaverse.

Breton said it’s important not to undermine net neutrality and that the debate should not be characterized as a “binary choice” between Internet service providers and Big Tech companies.

Breton’s presence at MWC, according to PP Foresight technology, media and telecom analyst Paolo Pescatore, reflected the alliance’s sympathy for Big Telecom.

“The challenge for Europe is that it’s not that simple because you have imbalances,” Pescatore said. “The imbalance is not about Big Tech, it’s not about broadcasters and telecoms. This is largely due to an old, outdated regulatory environment.”

The lack of cross-border consolidation and stagnant revenues in the telecom sector created “a perfect concoction that is unfavorable for the telecom industry,” he said.

“A potential landing zone for regulation is a framework for telcos to negotiate individually with the technology companies that generate the heaviest traffic,” Ahmad Latif Ali, IDC’s head of European telcos, told CNBC. “However, this is a highly controversial situation.”

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