Tensions between European telecommunications companies and US Big Tech companies have risen, as telecoms executives put pressure on regulators to make digital giants pay some of the costs of building the backbone of the internet.
European telcos argue that major internet companies, mainly American, have built their businesses on the back of the multi-billion 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 “fair share” charges to account for their disproportionate infrastructure needs and help fund the rollout of next-generation 5G and fiber networks.
The European Commission, the EU’s executive arm, launched a consultation last month to examine how to address the imbalance. Officials are seeking views on whether a direct contribution from internet giants to telecom operators should be required.
Big Tech companies say this would amount to an “internet tax” that could undermine net neutrality.
What do the telecom giants say?
The best telecom bosses came out swinging at the tech companies during the Mobile World Congress in Barcelona.
They lamented that they spent billions running cables and installing antennas to cope with the increasing demand for the Internet without corresponding investment from Big Tech.
“Without the telcos, without the network, there’s no Netflix, there’s no Google,” Michael Trabbia, chief technology officer and head of innovation for France’s Orange, told CNBC. “So we are absolutely crucial, we are the gateway to the digital world.”
In a presentation on February 27, the CEO of the German telecom group Deutsche Telekom, Tim Hoettges, showed the audience a rectangular illustration, which represented the extent of market value among various industry participants. American giants dominated this map.
Tim Hoettges, CEO of Deutsche Telekom, delivers a keynote at Mobile World Congress.
Angel García | Bloomberg | Getty Images
Hoettges asked the participants why these companies could not “at least a little, contribute to the efforts and the infrastructure that we are building here in Europe.”
Howard Watson, chief technology officer for BT, said he sees benefits in a fee for the big tech players.
“Can we make a two-sided model work, 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 charge developers a cut of in-app sales in exchange for using their services.
What have US tech companies said?
The work to implement network fees has been strongly criticized – not least by technology companies.
In a Feb. 28 speech at MWC, Netflix co-CEO Greg Peters called the proposal to make tech companies pay ISPs for network costs an Internet traffic “tax,” which would have a “negative effect” on consumers.
Greg Peters, Co-CEO of Netflix, speaks at a keynote about the future of entertainment at Mobile World Congress 2023.
Joan Cross | Nurphoto | Getty Images
Requiring Netflix — which already spends heavily on content delivery — to pay for network upgrades would make it harder to develop popular shows, Peters said.
Tech companies say operators already get 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 transport, they effectively want to get paid twice.
Consumers may stop absorbing costs required for digital content platforms, and this could ultimately “have a negative impact on consumers, especially at a time of price increases,” Matt Brittin, Google’s head of EMEA, said in September.
Tech companies also claim they are already making major investments in European telecoms infrastructure, including submarine cables and server farms.
Rethinking “net neutrality”
The “fair share” debate has raised some concerns that the principles of net neutrality – which say the internet should be free, open and prioritize no one service – could be undermined. Telcos insist they are not trying to erode net neutrality.
Tech companies worry that those who pay more for infrastructure may get better network access.
Google’s Brittin said fair share payments “potentially translate into measures that effectively discriminate between different types of traffic and violate end-user rights.”
One proposal is to require individual negotiated agreements with the 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 access to the net,” Telenor CEO Sigve Brekke told CNBC on February 27. “This has to do with the cost burden.”
Short term solution?
Operators complain that their networks are overloaded by huge output from tech giants. One solution is to spread content delivery at different times to ease the burden on network traffic.
Digital content providers could time a new blockbuster movie or game release more efficiently, or compress the data delivered to ease the pressure on networks.
“We could just start by having a clear schedule of what’s coming when and being able to have a dialogue about whether companies are using the most efficient way to transport traffic and can certain non-time-critical content be delivered at different times?” That’s what Marc Allera, CEO of BT’s consumer department, told CNBC.
“I think it’s a pretty, relatively easy debate to have, actually, even though a lot of the content is global, and what might be busy in one country and one time might be busy in another. But I think at a local level is really a very easy discussion to have.”
He suggested that the concept of net neutrality needs some updating.
Not a “binary choice”
The debate about “fair share” is as old as time. For over a decade, telecom operators have complained about excessive messaging and media services such as WhatsApp and Skype “free riding” on their networks.
At this year’s MWC, there was one notable difference — a senior EU official in the room.
Thierry Breton, EU Commissioner for the Single Market, gives a keynote at the Mobile World Congress in Barcelona.
Angel García | Bloomberg | Getty Images
Thierry Breton, head of the European Commission’s internal markets, said the bloc must “find a financing model for the huge investments needed” in the development of next-generation mobile networks and emerging technologies, such as metaverse.
Breton said it was important not to undermine net neutrality and that the debate should not be characterized as a “binary choice” between ISPs and Big Tech companies.
Breton’s presence at MWC appeared to reflect the bloc’s sympathies towards Big Telecom, according to Paolo Pescatore, technology, media and telecoms analyst at PP Foresight.
“The challenge in Europe is that it’s not so obvious because you have an imbalance,” Pescatore said. “The imbalance is not due to Big Tech, it is not due to streamers, and it is not due to the telcos. It is largely due to the old, outdated regulatory environment.”
A lack of cross-border consolidation and stagnant revenues in the telecom sector created a “perfect concoction that is unfavorable for telcos”, he said.
“A potential landing zone for resolution is a framework for telcos to negotiate individually with the technology companies that generate the heaviest traffic,” Ahmad Latif Ali, European telecom insights leader at IDC, told CNBC. “However, this is a very contentious situation.”
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