Internet Traffic Tax or (un)Fair Share Contributions debunked

Dear telco CEO, mr/mrs. .....

Let me see if I get this straight. So, there is Big Tech developing all these wonderful applications and content, ranging from Facebook to Netflix and beyond. Meta, by the way, intends to spend $10b on a new globe-spanning subsea cable. And Netflix spends $17b each year on content.

They place their content and services on servers in the cloud, sometimes in close proximity to end users. Netflix's CDN for instance is a free service for telcos, providing servers in telco PoPs. Consumers and businesses really love these applications and content and generate a lot of traffic, streaming and downloading. Big Tech benefits from this through subscriptions, transactions and advertising.

In others words, the producers and consumers of content and applications cause a lot of internet traffic. In fact, it is probably the large majority of all traffic. This extends to access networks, that you control and that you end up charging for. So, they make sure there is traffic and you get to charge consumers and businesses for it? Without Big Tech, there would hardly be an internet at all.

And now you want Big Tech to contribute to the cost of access networks? Do you have increased costs because of increased traffic? (hardly). Why not raise end-user tariffs? (go ahead).

Explain to me please why Big Tech needs to contribute to your costs, while you are charging users? Explain to me also why you shouldn't contribute to Big Tech's costs for developing content and applications, as well as internet backbones, datacenters, CDNs etc.

Best regards,

Communications Breakdown

EC proposals on broadband development under SIngle Market

EC speech (230206, Helsinki)

• 6G: Launches R&D project Smart Networks and Services Joint Undertaking (to lead the conception & standardisation of 6G)
• Broadband:
• Access regulation:
• plans Broadband Cost Reduction Directive Feb 2023
• plans Gigabit Recommendation (guidance for NRAs on how to use tools at their disposal to incentivise faster network deployment)
• Operating models: proposes morphing telcos from connectivity providers to infrastructure-as-a-service providers
• Fair share contribution (Internet Traffic Tax): plans consultation on "the future of connectivity and infrastructure": what is the infrastructure that Europe needs and how to timely mobilise investments? "raises the question of who pays for the next generation of connectivity infrastructure" (European Declaration on Digital Rights and Principles for the Digital Decade already established that all market players benefiting from the digital transformation should make a fair & proportionate contribution to public goods, services & infrastructure)
• Harmonisation, consolidation: how we can build a true Single Market for telecoms (curently based on business models based on national markets & high costs for national spectrum licenses), requires reflection on encouraging cross-border consolidation

Fair Share Contribution (aka Internet Traffic Tax) revisited - Big Telco vs. Big Tech

There are some problems with Big Telco's (ISPs) reasoning claiming that Big Tech (CAPs) should contribute their 'fair share' of broadband investments.

1. Net Neutrality

Applying the Internet Traffic Tax (ITT) to Big Tech only would violate Net Neutrality, meaning: it would create barriers to entry and growth for smaller and new CAPs, as Analysys Mason argues (and goes on to state that CAPs could have reduced incentives to invest in infrastructure, which would increase costs for ISPs, risk reduced quality of internet access, reduced ISP competition and ultimately higher fees for end-users).

By the way: what if the most popular services were not clustered at a handfull Big Tech companies, but instead were widely spread over hundreds or even more companies? What would the ITT then look like?

2. Fair is fair

Co-investment would necessarily lead to Big Tech taking an equity stake in a series of infrastructure joint-ventures with Big Telco.

Unless it would indeed be a tax, from which a European Broadband Fund would be funded, but that would alter the Big Telco proposal entirely.

Conversely, if Big Tech should share in the cost of access networks, then Big Telco should share in the cost of developing services and content.

Indeed, the EU appears to be signalling that the cost of for instance the metaverse and the cloud (incl. subsea cable systems and datacenters) should be considered - areas where Big Tech's investments dwarf those of Big Telco.

3. If it ain't broke, don't fix it

Increased data traffic leads to increased network costs and investments. This is a natural consequence of Big Tech services leading to the creation of the (large, growing and very profitable) Broadband Market in the first place. However, over the past few years Big Telco margins have only expanded, as the cost per bit has been coming down.

Peering and local caching (such as Netflix's free Open Connect CDN) only help towards this. The system, based on good old market forces, works fine. Some, such as DT and SKT, resist Open Connect, leading to more expensive transit (in the case of SKT: to Hong Kong and Tokyo), deteriorating the user experience.

4. Two-sided business model

Big Telco can't be forced to adopt a network vision including peering, local caching, transport (incl. subsea) and hosting (datacenters) and appears to be more interested in creating a two-sided business model based on Sending Party Network Pays (SPNP), as ETNO proposes (and BEREC opposed). Even if the former (peering and caching) provides Big Telco with large savings, as Analysys Mason shows. SPNP carries the risk of giving Big Telco monopoly power in termination, as Euro-IX argues.

Big Telco owns the billing relation with the end-user. If it has insufficient pricing power to raise prices, then this implies that not all Telcos agree with Big Telco's argument. Also, why not switch from unmetered to metered (volume-based) tiers? And remeber: manufacturers of electronic products never contributed to the cost of the electricity grid.