Europe’s largest telecoms have a new proposal to get the government to force websites and apps to pay them, claiming it’s a beautiful market-friendly, light-touch, targeted solution.
But if you look just a little closer, it’s the same as their previous flawed proposal.
For background, the European Commission is evaluating a proposal by Europe’s largest telecoms to force websites and apps to pay broadband companies like Telefonica, Orange, and Deutsche Telekom. This dangerous proposal would require companies like Twitch, YouTube, Netflix and more to pay every broadband provider in Europe, ostensibly to help fund the build out of faster networks in the EU.
These kinds of fees were proposed a decade ago and were rejected by Europe’s top telecom regulators (BEREC), European governments, and the European Commission. BEREC rejected this proposal again last fall, writing “it found no evidence that such a mechanism is justified given the current state of the market, [and] the ETNO members’ proposal could present various risks for the internet ecosystem.”
These network fees are unnecessary, attack the open internet, and directly violate both net neutrality principles and the EU’s net neutrality law.
Europeans already pay their ISP to do whatever they want online, but now the ISPs want to get paid twice for the same service, without the slightest requirement that new infrastructure would be built.
The Commission closed its consultation on the topic in mid-May and is currently analyzing the consultation responses.
The consultation asked for comment on two proposals:
A Central Fund: Certain websites and apps would be required to pay into a centralized EU fund. Some organization would then evaluate proposals and dole out the money from the fund to build out faster networks in the EU.
Mandated network fees: The government would require that websites and apps that meet certain criteria pay every European ISP directly.
But in their consultation response, ETNO and GSMA, the lobbying groups for Europe’s largest telecom companies, called for a third model.
Negotiated network fees: This proposal would require certain content providers and European ISPs “to negotiate … a fair and reasonable contribution for traffic delivery.”1 If talks break down, an arbitrator would step in and decide which company’s final offer wins.
In plain language, this proposal requires certain online services to negotiate with ISPs over the size of the fee, not whether there is a fee.
And if an online service disagrees with the requested fee or an ISP thinks an online service isn’t offering enough money, some arbitrator will decide how big that fee is.
This “obligation to negotiate network fees” is being shopped in the EU as a compromise alternative to mandated network fees, but it’s anything but.
In fact, it’s exactly the same.
While the telcos market the obligation to negotiate network fees as light-touch, less intrusive, and less regulatory than mandated network fees, an obligation to pay network fees is baked into the proposal: the negotiation determines how much the specific content provider has to pay the specific ISP, not if it should pay at all.
That’s a mandated fee.
A pig with a wig is still a pig.
The harms remain the same.
Just like mandated network fees, negotiated network fees would undermine the internet’s economics, violate net neutrality, make online services worse, subsidize ISPs’ own video services at the expense of user choice, and harm smaller competitive ISPs.
And to top it off, they are unlikely to promote network deployment, which is the ostensible reason for network fees.
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Both mandated fees and required negotiations are radical proposals that would needlessly upend 30 years of successful internet economics.
For thirty years, people have paid their ISP, whether that be a cable, phone, or mobile provider, to get online to read, email, chat, and entertain themselves anywhere on the internet.
Their ISP has the responsibility to connect its network to the rest of the internet so its subscribers can do whatever they like at the speed they paid for. Websites and apps in turn pay their own ISP to deliver requested data to their customers’ ISPs.
For 30 years, this model has allowed the internet to grow exponentially. Billions of people are now online thanks to the explosion of services and information on the internet. And year over year, the cost of data has gone down for everybody, including ISPs, online services, and people getting online at home or on mobile devices.
This model works.
But now, sensing a political opening, Europe’s biggest telecoms are pushing a proposal to undo this model so they get paid both by EU residents AND by online services. This would be a disastrous return to the economic model of telephony that made calling and texting other EU countries so expensive.
While big telecoms complain that YouTube viewing is making them go broke, all you have to do is read their financial statements to see they are doing more than fine financially and are already on track to meet the EU’s connectivity goals.
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Mandated fees and negotiated fees violate net neutrality by treating some sites differently from others.
The EU’s net neutrality law requires ISPs to treat all data equally, without discriminating among apps and sites. The European Court of Justice ruled twice in 2020 and 2021 that treating data differently economically (e.g. charging some sites but not others) was just as much a violation of net neutrality as treating them differently technically (slowing down some apps but not others).
Both proposals say that some online services, but not all, would either need to pay a mandated fee or would need to negotiate one. In the end, some pay, and others don’t.
That’s unequal treatment, and it violates net neutrality.
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Both proposals will reduce the quality of online services and increase costs for European businesses.
If an online video service like YouTube has to pay every ISP for the data used whenever an ISP’s customer watches a YouTube video, the natural response by the service will be to reduce the quality of the video sent to that ISP’s customers, since higher quality video requires more data.
With fees tied to data usage, it likely won’t make financial sense to allow users of that ISP to watch high-definition videos. So the quality of YouTube and other video services for EU users will be severely impaired.
That’s not hypothetical. It’s what we have seen in South Korea, after the government there began mandating payments to ISPs: the video streaming service Twitch eliminated high-definition live streams and then removed the ability of South Koreans to watch recorded live streams at all.
In other words, because network fees punish data usage, these fees will reverse the trend of the last 30 years where online experiences get better over time.
Additionally, European businesses of all sizes will face higher costs for the services they use (Microsoft Teams, Gmail, YouTube, online backups, cloud services, and more). That’s because these services will have to pass on the network fees they pay to ISPs to their customers in the form of higher subscription prices.
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Either proposal will directly and unfairly subsidize video services run by large telecoms.
Under either proposal, large ISPs that run online services or cable TV will get a direct subsidy for their products from their online competitors.
Online video services will have to pay the large ISPs under either proposal, whether that’s a government-specified fee per amount of traffic or whatever amount the ISP can wring out in a negotiation.
It’s a perfect proposal for any telecom worried about cord-cutting: Their online competitors will literally have to pay them for any customer who ditches the telecom’s TV service.
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Either proposal will entrench the largest ISPs and make it harder for smaller, competitive ISPs to compete.
Under a required negotiation regime, small ISPs will inevitably get less money per subscriber than the large ISPs.
Small ISPs lack the expertise and personnel for negotiations, while big ISPs have teams of lawyers and MBAs skilled in negotiations, partnerships, and so on. Smaller ISPs are leaner operations and might have to spend more in hiring outside lawyers to draw up contracts than they’d actually make from the fees.
Additionally, the largest ISPs come into negotiations with a monopoly over access to millions of customers, and will be able to demand a higher fee per subscriber than smaller ISPs. That is to say, while each ISP exclusively controls the pipes to its subscribers, the more subscribers you have overall, the more money you can demand per subscriber.
This would widen the chasm between large incumbent ISPs and the smaller, more innovative ones. It will favor consolidation and reduce ISP competition, resulting in higher prices and worse service for European users.
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Neither proposal would lead to increased 5G and fiber.
Neither proposal requires more network deployment than would happen without them.
Neither the mandated fees nor forced negotiation would have mechanisms that would require ISPs to use the network fees to build more infrastructure than they are already planning to.
Instead, ISPs would be free to take this new pot of money and use it for dividends, stock buybacks, acquisitions, or even executive bonuses.
The EU could decide to couple mandated fees with a requirement that this money be used *in addition* to existing and normal levels of infrastructure spending, but enforcing that would be extremely difficult, given how clever corporate accounting can be.
In a system with required negotiations, where everything is secret, it would be impossible to require or monitor this, and large telecoms will likely just treat the new money as an internal slush fund.
In fact, a 2012 study of the international telephony system, which had similar network fees, found countries that had the highest fees built out less infrastructure than those that got higher fees.
What incentive will ISPs have to finish building out high-capacity networks when doing so will prompt questions about why such payments are necessary?
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As we can see, large telecoms’ “compromise” proposal isn’t a compromise at all.
Forcing content providers to negotiate the size of the fees doesn’t remove any of the harms from mandated network fees. This “compromise” proposal isn’t better in any way, and like the other proposals, it’s unjustified, dangerous, and counterproductive.
Nobody should be fooled by this pig in a wig. It’s still just a pig.
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.
Read more:
- Explainer analyzing the network fee proposal, including more detailed legal analysis (submitted to the Commission Consultation) (Web version; download pdf; read online in a Google doc).
- On net neutrality & network fees: Here's how the European Commission proposal to force websites to pay ISPs violates net neutrality.
1 “Obligation to negotiate: A contribution mechanism should be based on commercial negotiations enshrined in a framework that obliges the parties to negotiate, in good faith and based on common EU principles, a fair and reasonable contribution for traffic delivery.” (GSMA/ETNO Summary of the Joint Telecom Industry Response to the EU consultation on The future of the electronic communications sector and its infrastructure, p. 9)