Europe’s biggest telecoms are trying to trick the European Parliament into endorsing their proposal to force websites to pay them without proper evaluation and debate. MEPs shouldn’t let them.

By Barbara van Schewick on June 12, 2023 at 8:34 am

On Tuesday, June 13, the European Parliament will vote on the 2022 Annual Report on Competition Policy by the Parliament’s Committee on Economic and Monetary Affairs. 

Paragraph 44 of the report endorses, in seemingly innocuous language, a radical proposal by ETNO, the lobbying association of Europe’s largest telecom, to force certain websites and apps to pay broadband providers like Telefonica, Orange, and Deutsche Telekom. 

 

These kind of network fees have never existed in the EU and violate Europe’s net neutrality law. They would be a radical departure from how the internet has operated over the last 30 years.

 

They would directly harm and indirectly tax European consumers, businesses, creators, and nonprofits, transferring money from them to giant, incumbent telecom companies without even a promise that new infrastructure would be built.

 

Buried in the middle of a 25-page report on a different topic, the paragraph endorsing this proposal is a trojan horse - an attempt to get the EU Parliament to prematurely support ETNO’s proposal without proper evaluation and debate. 

 

This paragraph is highly problematic and should be deleted from the report. 

 

1. It is too early for the EU Parliament to take a position on ETNO’s proposal.

 

The Commission just closed its consultation on the topic in mid-May. The consultation received 437 submissions, but they have not even been published yet - let alone analyzed. However, it is known that Internet standard settings bodies, digital rights groups, Europe's top telecom regulators and many more filed detailed commentary on the flaws and harms of the proposal.

 

The Parliament voting to support the big telecoms' proposal without analyzing the consultation responses would make a mockery of the consultation process and be a slap in the face of the many citizens, start-ups, businesses, NGOs, experts, and member states who participated in the consultation.

 

2. The European Parliament should listen to the EU’s own telecom experts. 

 

Letting the consultation process unfold is even more important given that EU’s top telecom regulator BEREC scathingly rejected the ETNO proposal in October 2022 and again in May 2023. 

 

In October, BEREC concluded the proposal was no different than a widely rejected 2012 proposal by the same companies, “found no evidence that such a mechanism is justified,” and warned that the proposal “could be of significant harm to the internet ecosystem.”

 

BEREC’s May 2023 consultation response again found there is no problem and even if there was, network fees would not fix it: 

 

“Any regulatory intervention requires a proper justification. BEREC is currently not aware of structural interconnection problems in relation to growing volumes of traffic attributed to content and application providers. 

 

It is questionable that mandatory payments from content and application providers to internet service providers (ISPs) would lead to Member States meeting the connectivity targets.” 

 

Moreover, BEREC warned that forcing certain websites to pay ISPs would harm competition and innovation and hurt European consumers, small businesses, and startups. 

 

But that's exactly what Paragraph 44 endorses:

 

"The European Parliament:

  • Is of the opinion that the economic sustainability of telecom networks is essential to achieving the 2030 Digital Compass connectivity targets and high performance connectivity for all citizens within the EU without jeopardising competition rules;
  • urges the Commission to address and mitigate persistent asymmetries in bargaining power as set out by the European Declaration on Digital Rights and Principles for the Digital Decade;
  • calls for the establishment of a policy framework where large traffic generators contribute fairly to the adequate funding of telecom networks."

 

In other words, the Parliament is being asked to endorse a policy that websites and services pay broadband providers, so that broadband providers get paid twice.

 

3. Paragraph 44 repeats flawed assumptions that have long been refuted, including by Europe’s top telecom regulator BEREC. 

 

Paragraph 44 “calls for the establishment of a policy framework where large traffic generators contribute fairly to the adequate funding of telecom networks.”

 

That's simply not how the internet works.

 

Internet users cause traffic, not content providers.

YouTube doesn’t randomly send 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.

 

Content providers already contribute massively by investing in content, applications, services, and infrastructure.

Large content providers spend billions of dollars on network infrastructure each year to bring data from their headquarters right to the ISP’s door. They operate data centers, transport data across the world with undersea cables, store copies of that data close to customers in CDNs, and interconnect with ISPs to get that data into the ISP’s network – or pay a third party to do some or all of this. These investments make it easier and faster for ISPs to get that data to their customers. They total over $883 billion worldwide over the last decade, including over $201 billion spent in Europe.

 

Paragraph 44 also ignores content providers’ significant investments in content and applications: content and apps are the reason why people buy internet access service in the first place. 

 

ISPs have customers because content providers took significant risks to develop new content and apps that have changed the world. ISPs reap the benefits without taking any risk of their own, but act as though they have been harmed by having to take on new customers and make more money.

 

4. ISPs’ claims that rising traffic is overwhelming their networks are false, and ISPs do not need payment from online companies to meet EU connectivity goals.

Despite claims in studies paid for by the largest telecoms, EU networks are not being overrun with traffic. Traffic is growing at a predictable and steady rate, while the technology to handle more traffic becomes cheaper every year. 

And while there are issues in some EU member states with deployment of 5G and fiber-to-the-home, telecoms do not lack the funds to build out new infrastructure and don’t need additional money to handle increased traffic.

 

Increased traffic does not result in higher costs.

Network fee proposals assume that the fees are necessary to finance network upgrades due to increased user demand for content from large CAPs. But the data shows that increased traffic has minimal impact on ISP costs.

Even as traffic has nearly tripled over the last three years, ISP costs have remained roughly the same. In a 2021 presentation to investors at the height of pandemic usage, Vodafone told investors that “Usage has grown rapidly [but] Capital intensity has absorbed this AND Cost per GB has fallen faster,” saying that its cost per GB had fallen 70% in 5 years from 2017 to 2021.

This has been the pattern for decades as cost savings from advances in protocols and networking equipment capabilities offset increased traffic. In 2016, AT&T’s CFO said that AT&T’s move to network virtualization let it add 2.5 times more capacity at 75% of the prior capital cost. The transition to fiber will make ISP costs even less traffic-sensitive by expanding capacity far beyond what is required.

 

The problem with broadband deployment is not lack of funding.

The consultation suggests there is a funding gap for deployment, but current infrastructure spending is already on track to exceed the estimated €174b needed to achieve Europe’s Digital Decade goals. ETNO’s own report makes clear that, if ETNO members’ level of investment continues, the current level of telco investment by 2030 will more than double the estimate at €350b. Other players, like upstart ISPs and tower companies, are contributing as well.

Successes in places like Spain and challenges in places like Germany show next generation broadband deployment isn’t limited by funding. When regulators address complex permitting processes, spectrum allocation, duct access, and a lack of digging capacity, deployment increases rapidly. 

 

If the Parliament truly wants to expand deployment quickly, it should focus on removing barriers to infrastructure. While there will be rural areas that will require subsidies, there are proven methods to incentivize otherwise uneconomical build-outs.

 

5. Charging only some content providers and not their competitors for the traffic associated with their apps would create serious competition problems. 

 

It imposes a “tax” on the most popular businesses in a wide range of markets. This would distort competition in many markets that are currently highly competitive. Netflix would be forced to pay, while Tubi can compete at a much lower cost. No matter which video service users prefer, those exempted from the tax will have a competitive advantage solely because of their lower costs. 

 

This makes no sense and violates the principle of cost causation. Packets are packets: streaming video from a less popular provider burdens the network just as much as video from a popular service, and the users of both services have already compensated their ISP for that burden.

Network fees are even more egregious because many large ISPs offer cable TV services and run their own online video, music, and cloud services that compete with the services they want to tax.

ISP-owned online services like Telefonica’s Movistar Música, Deutsche Telekom's MagentaTV, and Orange Cloud will all gain a huge advantage over competitors paying fees. In fact, they’ll even get an extra boost because their parent company will be on the receiving end of these payments. 

 

6. Even if network fees are levied only on large US tech companies, European consumers, businesses, creators, and nonprofits will pay the costs.  

 

Network fees will harm European consumers.

Network fees will increase the price or reduce the quality of popular online services. Because popular content providers will face significantly higher costs, many services Europeans like to use will be more expensive, whether that’s gaming, video streaming, or online backups. ISPs can charge exorbitant network fees because of their termination monopolies: they exclusively control the pipes to their internet subscribers. As we’ve seen in the past, these monopoly fees get passed to users in the form of higher prices.

Alternatively, affected apps and services may restructure their EU offerings to lower the network fees. We have seen this happen in South Korea. For example, higher quality video requires more data. By limiting high-bandwidth services to paying customers or reducing the quality for everyone, content providers can avoid or reduce fees. This would mean the end of free content and high-quality streaming in Europe.

Finally, the fees will reduce budgets for creating new movies, paying creators and improving services, leaving Europeans worse off.

 

Network fees will harm European businesses, creators, and nonprofits.

Almost all EU organizations, large and small, and even individuals, use services provided by those companies, including cloud hosting and CDNs like Google Cloud, productivity services like Microsoft Teams, social media platforms like Instagram, and photo backups like iCloud.

 

EU businesses will pay higher prices for these services or switch to low-quality alternatives. Even reaching Europeans with advertising online will become more expensive.

 

Creators’ share of ad revenue on popular platforms will fall. Free photo and email storage limits will drop. Ad-supported offerings like YouTube and Twitch will reduce their quality or end their free tier in Europe. 

 

7. Forcing some content providers to pay ISPs violates Europe’s net neutrality law. 

 

As I explain in this blog post, forcing some content providers to pay ISPs, but not others, violates Art. 3(3) and Art. 3(1) of the Open Internet Regulation. 

 

BEREC’s submission to the Consultation came to the same conclusion (Appendix 4, pp. 14-15). The Open Internet Regulation tasks BEREC with drafting the guidelines that define how to enforce the Regulation, so they are intimately familiar with the law. 

 

***

 

Europe’s largest telecom companies are trying 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 anything better.

 

Now, facing stiff resistance in the proposal stage, they are trying to make an end run around the democratic process and sneak it into a report so they can pretend that the Parliament is on their side in their attempt to undermine net neutrality and reverse 30 years of successful internet economics.

 

Members of Parliament shouldn’t let them. 

 

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.

 

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