A campaign to make Big Tech pay for telecom networks gathers pace

On the morning of September 28, European competition chief Margrethe Vestager met one of the people leading the crusade to reduce the market dominance of big tech companies around the world.

The top Republican at the U.S. Federal Communications Commission has been trying to bolster a campaign to get tech giants like Google and Netflix to pay for huge investments on both sides of the Atlantic. Networks.

Efforts to force tech companies to make what proponents call a “fair contribution” to network costs are not new, the debate has been raging for a decade.

But now there are signs that regulators in Europe and the US are becoming more favorable to the debate – and as the momentum gathers, the bitter debate between operators and technology groups is spilling into the public eye.

In early September, the European Union Commission announced that it would begin a review of whether tech companies should bear more costs for telecom networks. Vestager said the issue “must be carefully considered”, adding that technology groups “have not contributed to enabling investments in the expansion of communication”.

Meanwhile, the governments of France, Italy and Spain – which are heavily subsidizing network upgrades using taxpayers’ money – sent a joint paper to the commission in August calling for a legislative proposal to be quickly drawn up.

“It’s a ripe issue and it’s at a tipping point,” Carr told the Financial Times. “Gone are the days when big technology was untouchable.”

“We need hundreds of billions of dollars to fund improvements to public networks, but the current financial models are under stress. The benefits are piling up in the hands of these big tech corporations and now is the time to rebalance,” he said.

Analysts at Barclays* predict a €3bn to €4bn annual windfall for the sector if the law is changed to allow tech companies to pay half the cost of network capacity.

Telecom companies are spending tens of billions upgrading existing copper networks to fiber, increasing data usage and transitioning to 5G.

Technology groups argue that they already contribute much to the Internet’s infrastructure by investing in data centers and submarine cables and developing services that customers want to use on smartphones and computers. They say the proposal undermines the principle of ‘net neutrality’, which prevents broadband providers from blocking any user’s access to a website.

The heated debate comes amid a broader crackdown on the dominance of the big tech market and anti-competitive behavior in the US and Europe. Earlier this year, Vestager imposed a record fine on Google for abusing its dominance over the Android mobile system. The US is considering eliminating new restrictions on big tech companies through the bipartisan American Innovation and Choice Online Act.

“Now there seems to be some political support in Brussels to look at this idea,” said Christian Borgrin, head of the office of the European Computer and Communications Industry Association, a tech lobby group.

The debate is basically based on the different fortunes of telecom groups and some big tech and streaming trends. The latter group saw their share prices increase as they depended more on their services during the pandemic.

“Now that I’m a minister, I look at the situation in Europe and I see a huge imbalance,” Vittorio Colao, Italy’s technology innovation minister and former Vodafone chief executive, told an FT panel last month.

At the same event, Orange CEO Christel Heidemann admitted that operators have been struggling to get customers to pay for higher traffic volumes.

“When you look at 2G, 3G, 4G, it means we haven’t been able to raise the prices paid by consumers. We have a very competitive market in Europe,” she argued, if telecom companies don’t get it. The way large technology groups charge for the infrastructure they use will force them to reduce their investment.

Operators and some lawmakers argue that the explosion of video streaming, which has dramatically increased the data burden on telcos, has made the issue even more urgent.

Last year, 56 percent of global traffic was driven by just six companies – Google, Meta, Netflix, Apple, Amazon and Microsoft – a report by European telecoms lobby group ETNO revealed earlier this year.

But Matt Brittin, president of business and operations for Google in Europe, argued that tech groups have invested heavily in Internet infrastructure. Google has spent €12 billion on six large data centers in Europe, built 20 submarine cables globally, including five in Europe, and has invested in helping telecoms operators store content locally to deal with traffic congestion, he told the FT.

They argue that Netflix’s investment in and development of high-quality online content and services — like its popular movie and TV lineup — drove the demand for Internet services in the first place.

Telecom operators are “telling investors that increasing consumer demand for data is the driver of future growth, while in Brussels, they will turn around and tell EU lawmakers that more data traffic is unsustainable for their business,” Borggen said.

He and other European telcos generally point to higher profits as a reason to opt for less spending on infrastructure upgrades.

Some analysts argue that any divestment measures will fail to address the root causes of European telecoms groups’ struggles to monetise their capital expenditure.

“Forcing content providers to pay telecom networks without direct commercial returns is a punitive tax on the digitization that policymakers are trying to promote,” writes Hosuke Lee-Makiyama, director of the European Center for International Political Economy.

He and others have warned that such a tax could erode tech groups’ incentives to invest in new technologies. Others suggest there is a real risk that additional costs could be passed on to consumers through higher prices.

One of the most pressing points in the debate is that no one has developed a clear idea of ​​how technology companies can contribute.

A theoretical possibility could be direct payments from tech groups to telecom companies, but the question of how regulators decide which groups contribute remains unresolved. Alternatively, third-party funds or taxes could be collected by governments and distributed to telecom operators, but this could be highly controversial and challenging to hedge.

“The most difficult thing is to find a robust and accurate algorithm,” said one European minister. “The telco industry will continue to talk about it [it] And it still doesn’t have an exact formula.

Additional reporting by Javier Espinoza

*Deutsche Telecom misquoted an earlier version of this article.