European telcos say big tech should help fund network infrastructure (again)

Telefonica, Deutsche Telekom, Vodafone and Orange have reiterated claims that big tech should help fund network infrastructure development, which they are apparently struggling to get ROI on.

Heads of some of the biggest European operators have published an open letter in the FT claiming Europe’s telecoms market risks falling behind rivals, and that big tech really needs to help out if continued network infrastructure is going to happen.

It is jointly signed by José María Álvarez-Pallete López, Chairman and Chief Executive at Telefónica, Tim Höttges, Chief Executive at Deutsche Telekom, Nick Read, Chief Executive at Vodafone, and Stéphane Richard, Chairman and Chief Executive at Orange.

Telcos have got together to make the same case before. The argument boils down to this: Thanks to modern network infrastructure, big tech has been able to get get filthy rich from the boom in streaming and cloud demand, and its time they help cover some of the costs of the piping.

The letter opens by saying data traffic is increasing by 50% every year, and that operators have invested big sums to upgrade networks and increase capacity to keep up with it, inferring that they were the ones keeping the lights on during the pandemic. Here’s a selected chunk:

Continued investment is fundamental to ensuring the unrestricted access and participation of citizens in our digital society. But the current situation is simply not sustainable. The investment burden must be shared in a more proportionate way. Today, video streaming, gaming and social media originated by a few digital content platforms account for over 70 per cent of all traffic running over the networks. Digital platforms are profiting from “hyperscaling” business models at little cost while network operators shoulder the required investments in connectivity. At the same time our retail markets are in perpetual decline in terms of profitability.

As things stand, network operators are in no position to negotiate fair terms with these giant platforms due to their strong market positions, asymmetric bargaining power and the lack of a level regulatory playing field. Consequently, we cannot make a viable return on our very significant investments, putting further infrastructure development at risk.

With large digital content platforms continually pushing for higher quality streaming, the step-change in data traffic we’re experiencing will increase consistently without limits. If we don’t fix this unbalanced situation Europe will fall behind other world regions, ultimately degrading the quality of experience for all consumers.

The letter goes on to cite the fact that South Korean lawmakers are apparently looking at ‘regulatory conditions for a fairer contribution to network costs’ following a surge in traffic driven thanks to Netflix’s series Squid Game, and that the US is also looking into it. It also argues that this is also an environmental issue:

Such shared investments are also vital to accelerate green connectivity and digital technologies that contribute to more sustainable economies and drive efficiencies, strengthening Europe’s international green leadership and the push for green jobs. Absent a “price” for the data being emitted, the incentive for big content providers to optimise their data traffic will remain low.

This last point, that unless big tech starts paying for network infrastructure it won’t ‘optimise data traffic’, which is bad for the environment, seems a bit thin and separate from its core argument.

The letter concludes by citing a recent statement by the European Commission’s which loosely discussed systems that would mean “all market players benefiting from the digital transformation… make a fair and proportionate contribution to the costs of public goods, services and infrastructures.”

The letter is essentially a call to the EU to give these sentiments teeth and lay down some new rules.

To the telcos point, and to extrapolate it out a bit wider, recent financial results for big tech firms has told a story of insanely profitable cloud businesses, which of course are only possible because of network infostructure, whether fixed line or mobile. Anyone selling cloud services is getting filthy rich right now – particularly the big three hyperscalers of Google, Amazon and Microsoft.

A counter point is that streaming and other cloud stuff is the reason telcos are in a position to sell their wares. In the absence of streaming services, online gaming, and cloud platforms, what exactly do you need a new 5G contract or full fibre package for?

In any case it would seem to be a difficult thing for the EU to force a small number of large US businesses to start directly ploughing money into European infrastructure projects, but that’s what’s being asked for. Then again, the EU does have form when it comes to squaring up to big tech, so this story will be an interesting one to watch unfold.