A progress update on the telco ‘fair share’ debate

Over the past year, European telcos have been campaigning for the European Commission (EC) to extract what has been coined as a ‘fair contribution’ or ‘fair share’ payment from bandwidth-hungry content application providers (CAPs), also sometimes referred to as Big Tech firms. These include the likes of Google, Netflix, Meta, Amazon, and Apple. 

While growing calls for fair share funds towards network costs initially fell on deaf ears, they eventually gained some political momentum in Brussels. And as the industry keenly anticipated an outcome, telcos made a renewed push for it in October of last year.  

They warned of the failure of the European Digital Decade if future investments, alongside regulatory changes, were not secured. These calls have been often in collaboration with trade associations such as the European Telecommunications Network Operators’ Association (ETNO). 

Suggesting relentless data traffic growth is driven by Big Tech, who make up just over a handful of CAPs, proponents of fair share say telco capex and margins are negatively impacted as a result. More recently, telcos pointed to EU calculations published with regards to the Digital Decade targets which estimates that between €174 billion and €227 billion of new investment is needed to ensure the connectivity targets are delivered by 2030.  

It is worth noting here that the EU states this figure is inclusive of public and private funds and, by ETNO’s own claims, much less than operators’ existing spending per year. To spell it out, currently telcos are investing €56.3 billion per annum which over seven years would accumulate to much more than a maximum of €227 billion investments including public spending.  

One could argue that this inherently debunks any arguments that the success of the Digital Decade targets over the next seven years relies on the need for fair contribution.  

Treading water as momentum comes to a halt in the EU 

Despite the political momentum the debate garnered in mid-2023, and the expectations for a legislative proposal before the year’s end, Thierry Breton, the current European Commissioner for Internal Markets, burst many telco bubbles.  

In October 2023, Breton announced the postponement of any legislative proposal on fair contribution until after the new Commissioner was appointed. This is now expected to take place in 2025.  

Some in the industry have interpreted this as a win for Big Tech, others remain optimistic about fair share legislation. Ultimately, the position remains unchanged while national governments have gained time to collect further evidence.  

Mounting opposition from national governments, both within the EU and outside 

While most of this debate has revolved around the EU over the past year, it is neither new nor limited to this region. 

In the US the debate has been discussed in connection with the universal service fund (USF). A research note by Strand Consult suggests that “the notion of broadening the base of contributors to the USF demonstrates essential tenets of economics, fairness, and sustainability. When the burden is shared, the internet will be more affordable for the least powerful parties, low-income consumers”. 

While this burden may well be formidable, defining who actually is responsible for it is not straight forward. Making others pay for your infrastructure is often argued as unfair, and it seems many national governments echo this view.  

The US National Telecommunications and Information Administration (NTIA) says programmes such as the USF massively incentivise investments, but fair share is not the answer. NTIA has urged the EU to be cautious with regards to fair contribution funding mechanisms that would stand to disrupt the existing internet ecosystem. It concludes such systems could raise end-user costs and undermine net neutrality.  

One may argue this is an unsurprising position from the US, seeing as the tech giants in question are all US-based companies with greater influence across the Atlantic than over here. But BEREC’s (Body of European Regulators for Electronic Communications) original assessment concluded that demands for fair share are not justified, as it warned of termination monopolies and that Big Tech is not “free-riding”.  

An increasing number of European countries have also been conducting their own investigations, seeking evidence on whether, and how much, responsibility should fall on Big Tech. These include Germany, Netherlands, Belgium, and UK.  

In Germany’s case, a 2022 research commissioned by the regulator, Bundesnetzagentur, concluded that imposing fair contribution fees could negatively impact consumers. More recently German Digital Minister, Volker Wissing, echoed these findings, stating he does not support such market intervention and that the free and open internet needed to be protected.  

In February 2023, the Dutch government also suggested that fair share and net neutrality would stand in contradiction of each other and could negatively impact pricing for consumers.  

Belgian regulator, BIPT, has gone even a step further than its German and Dutch counterparts, explicitly defining the role end-users play and the accountability they hold over their use of the internet.  

BIPT reckons there is both lack of evidence to blame the tech giants, as it argues “it is a little too easy to state that Big Tech is causing these data streams”, and that the end-users are ultimately the ones who are already paying for their use of increasing data intensity through their fixed and mobile subscriptions. Something that is often echoed by critics of fair share.  

Within the EU, reportedly there are a total of 18 countries making up the majority of EU nations that are against such network levies or demanding an analysis of the need for and the impact of such regulatory interference. Among these markets are Austria, the Czech Republic, Denmark, Finland, Ireland, Lithuania, and Malta. Italy, interesting, has been one market that was originally a proponent but has since u-turned on its position and opposes fair share now.  

Outside of the EU but in Europe, UK’s Ofcom also voiced its opposition to the argument for communication service providers (CSPs) to charge CAPs for carrying their traffic, saying it had “not seen sufficient evidence”.  

Apple and Google ad revenue share sets an example for fair share, or does it? 

One of the opposing arguments towards fair share highlights the lack of a viable payment architecture that could deal with the matter without enabling preferential treatment and without opposing existing net neutrality laws in the EU.  

However, Denis O’Brien of Digicel argues that Apple and Google have now set an example for a revenue share model through their long standing advertising revenue share deals, which telcos and CAPs could mimic.  

To contextualise, in November 2023 it was revealed that Alphabet (Google’s parent conglomerate) pays 36% of all advertising revenue made through the Safari browser to Apple. The news of this figure first emerged on the back of Kevin Murphy’s testimony during an antitrust trial and then was confirmed by Alphabet CEO Sundar Pichai.  

Drawing parallels in such a case presumably means that Apple is enabling access to an audience for Google through its Safari platform in the same manner as CSPs do through connectivity to Big Tech for their content.  

But these commercial agreements are voluntary rather than regulatory mandates. As a result, the viability of such a model – in which both parties have mutually agreed to share revenue – for the purpose of a mandatory fee – to which both parties are mandated to, no matter if in agreement or not – remains an unanswered question.  

Big Tech violations are plentiful but are they a reason for fair share? 

Some proponents of fair contribution argue that Big Tech is too often acting out as an oligopoly and must be held accountable for that behaviour. With various rights organisations listing plenty of reasons to boycott Big Tech, their offences include tax avoidance, violation of workers’ rights, fuelling climate change, antitrust behaviours, supporting militarization and racial segregation, and more. 

These are serious offences for which they most certainly must be held accountable. But what continues to remain another unanswered question is why telecom operators should benefit from Big Tech wrong doings, especially when operators are already getting paid for their services by their customers. 

By ETNO’s own account the proposal of fair share is not one of taxation but rather “a commercial relationship that recognises a direct contribution by tech giants to network costs”. This means Big Tech won’t be held accountable for their wrong doings in terms of taxation and worker rights, etc, through fair contribution, and as such this argument is also flawed.  

Unsustainable telco business model means something has to give eventually 

For anyone who’s been following telco revenues over the past decade or so it is evident that the traditional business model is no longer holding up and something has to give. Instead of introducing an unfair share, the UK regulator, Ofcom, believes other regulatory tools available to them can encourage telco market growth. This they believe can be achieved by overhauling what sometimes is viewed as restrictive policies imposed on the telecom sector.  

Acknowledging the values net neutrality has brought about to date, Ofcom says in the face of technology advancements such as 5G (and we would also assume fibre optic connectivity), net neutrality needs to be reformed.  

As such, in the UK CSPs are now free to offer premium connectivity and zero-rating services, both of which were previously considered prohibited under the open internet access rules (aka net neutrality).  

Reforming regulations to reflect advancements of technologies that enable innovative business models such as zero-rating certainly seems just. But instead in the EU current rulings still show the contrary.  

In 2017, German incumbent Deutsche Telekom (DT) had attempted what was then hailed as an innovative pricing through its StreamOn initiative, only for it to be banned by the regulator by the end of that year. This was followed by a five-year long lawsuit that eventually saw DT take the service down. 

In-country convergence is another regulatory step that some argue would enable the reduction of highly fragmented markets while supporting large-scale investments. This view often comes up in comparisons of the size of the EU with the US and the number of active operators in the respective regions.  

Two wrongs and all that… 

Call us naive but there seem to be equally as many legal avenues to make Big Tech companies pay what they owe (in taxation or otherwise) as there are regulatory tools to encourage telco market growth. That is, if politicians are actually willing to hold tech giants accountable and ensure they abide by the same laws as the rest of us. 

Once more, we feel compelled to argue that two wrongs don’t make a right. Neither regulatory restrictions over telecoms nor Big Tech’s offences justify a ‘fair share’ that would benefit the pockets of telco shareholders only while risking consumer experience, the creation of other monopolies, and the disruption of the internet ecosystem. But that’s just our humble opinion.