By Barbara van Schewick on November 23, 2022 at 12:05 am
Europe’s top telecom regulator dealt a strong blow to Europe’s biggest telecoms in a report released in October, finding “no evidence” to justify the proposal from large broadband companies like Deutsche Telekom and Orange to force websites and apps to pay them.
The report comes after European Commission officials earlier this year advanced a proposal by ETNO, the lobbying organization of large European telecoms, to require online services to pay unprecedented termination fees1 to broadband providers. This would have rushed through dramatic changes to Europe’s internet ecosystem without consulting expert agencies or the public.
After a public outcry and letters of concern from seven member states, 54 European Parliament members, and 34 civil society groups, the Commission delayed consideration of the proposal. This gave BEREC, the EU’s expert telecom agency, time to complete its study of the proposal.
Now, BEREC has weighed in with a 15-page report. They found unequivocally that this proposal is both unnecessary and “could be of significant harm to the internet ecosystem.”
This harsh criticism from the EU’s top experts is a severe blow to large ISPs’ latest attempt to force websites and apps to pay broadband providers on top of what they are already being paid by their customers for the same service.
Why Did BEREC Issue a Report & What Did ETNO Propose
BEREC is the EU’s expert telecom agency and consists of the national telecom regulators from across the EU. When Commission officials announced they were considering ETNO’s proposal to require termination fees, BEREC began working on a series of reports, the first of which was released in October.
ETNO wants the EU to force websites to pay broadband providers for traffic that broadband providers’ customers request from the sites. These termination fees would require websites and apps to pay European ISPs in order not to be blocked from serving an ISP’s customers. Thus, even though ISPs are already paid by their customers to connect them to the Internet, the ISPs want to get paid again by the websites and apps their customers use.
Neither ETNO nor the Commission have released any specifics on how the mandated payments would work, including how much ISPs could demand; who measures the amount of traffic; how encrypted traffic gets identified; which websites, apps, and infrastructure services would need to pay; or what happens to sites or services that can’t afford the fees. Even if the Commission tried to limit the fees to large American tech companies, thousands of European businesses would likely be unintentionally roped in for using content delivery networks and cloud services offered by these companies.
Without concrete policy details from the Commission, BEREC’s report simply examines the assumptions underlying the ETNO proposal. BEREC notes that ETNO wanted the International Telecom Union (ITU) to adopt a similar proposal back in 2012, but BEREC, the EU, and ultimately the ITU rejected that idea then.
In its new report, BEREC concludes that ETNO’s reasoning has the same flaws now as it did more than a decade ago—and that nothing has changed in the internet ecosystem that would warrant adopting this dangerous and unnecessary policy today.
BEREC takes on the flaws one by one.
Flaw #1: ISPs’ Customers Cause Traffic, Not Websites and Apps
ETNO claims that content providers cause data traffic on ISPs’ networks that they should pay for.
BEREC explains that the traffic on an ISP’s network is caused by that ISP’s customers, not by online services. YouTube doesn’t randomly send cat videos to an ISP’s internet customers. Instead, the cat video traffic is caused by the ISP’s customers who click on the cat video, and ISPs are already compensated by these customers for transporting the video and everything else their customers access online; that’s what people’s internet subscription fees pay for.
Flaw #2: The Internet Works Really Well Without Big Government Regulation, and Mandating Termination Fees Would Require a Significant Increase in Regulation
BEREC notes that internet access service has, for years, become faster, cheaper, and more widely available and credits the favorable regulatory conditions for these benefits. With limited government regulation of data transfer online, the free market allows online services to drive demand for better and faster broadband, and better technology makes it cheaper to build faster and more widespread broadband networks.
The government has never come close to mandating payments of this type; doing so now risks harming the environment that has allowed the internet to thrive.
BEREC warns that mandating termination fees would create new problems that would require even more regulation. That’s because every broadband provider has a monopoly over access to its customers: the only way for Netflix to send a video to a Deutsche Telekom subscriber is through Deutsche Telekom.
This termination monopoly would allow ISPs to charge online services monopoly fees, which would ultimately be paid by the European people and businesses using these online services. Avoiding the predatory pricing resulting from ISPs’ termination monopoly will require some regulatory authority to regulate the rates for termination fees. And as BEREC emphasizes, this increased regulation could further damage the existing framework that has allowed the internet to thrive for the past two decades.
Flaw #3: ISP Costs Aren’t Traffic Sensitive
BEREC rejects a key assumption in ETNO’s argument: that “an increase in traffic directly translates into higher costs.”
Instead, BEREC notes that, in general, “the costs of IP network infrastructures are not very traffic-sensitive.” In other words, an ISP’s costs don’t increase much when its subscribers use more data. Data is different from water or electricity: the additional cost of sending more data through the same-size pipe is negligible. That’s especially true for fiber networks which can handle much more traffic than they are initially put to use for.
But if an ISP’s network costs don’t change much when its customers use more data, there is simply no reason why the ISP should receive additional compensation from the online services its customers are using, as BEREC points out.
Flaw #4: Websites and Apps Are Not “Free-riding” And Spend Billions of Euros on Internet Infrastructure
According to BEREC, ETNO’s claim that online services aren’t paying their “fair share” focuses too narrowly on access networks instead of considering the entire internet ecosystem.
Online services invest lots of money in creating their own content. They spend billions of dollars every year building internet infrastructure and transporting their content right to the ISPs' doors. From there, ISPs deliver the content to the internet service customers who requested it. An ISP’s customers pay that ISP to transport their data to and from the internet, and their subscription fees typically cover the costs of building and upgrading the ISP’s network as well.
As BEREC makes clear: “There is no evidence that operators’ network costs are not fully covered and paid for in the internet value chain. […] There is no evidence of “free-riding.”
BEREC points out that burgeoning online services and traffic growth are good for broadband providers: They motivate people to buy more expensive internet plans with faster speeds and higher data caps, which increases broadband providers’ profits. And that gives broadband providers the money and customer base to build out even better infrastructure.
Ultimately, BEREC Finds ETNO’s Proposal Unjustified
BEREC concludes its report on an unequivocal note: “BEREC has found no evidence that such a mechanism is justified given the current state of the market. BEREC believes that the ETNO members’ proposal could present various risks for the internet ecosystem.”
That’s how regulators nicely say, “This a terrible idea with no justification and would likely harm the single most successful telecommunications system ever invented.”
The European Commission has said that it plans to conduct some sort of consultation on the ETNO proposal in 2023, but there has been no official word on whether citizens, academics, and NGOs can participate.
Either way, after the BEREC report’s unflinching conclusions, it will surely be more difficult for ISPs to push through changes to the European Internet that are built upon flawed and self-serving assumptions and would severely harm European internet users, without even the slightest guarantee they would make it anything better.
We can only hope that the European Commission starts listening to its experts, instead of the experts who work for the big ISPs.
Barbara van Schewick is one of the world’s leading experts on net neutrality, a professor at Stanford Law School, and the director of Stanford Law School’s Center for Internet and Society.
Thanks to Garrett Muscatel for his research and writing help with this post.
1 In the US, these fees are often called “access fees.”
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