As the European summer draws to a close, all eyes will be swiftly returning the Brussels policy agenda. We have entered a new stage in the important debate on how best to fund Europe’s connectivity infrastructure. To recap where we are, 437 responses were submitted ahead of the 19 May deadline for the European Commission’s public consultation on the future of connectivity in Europe.
The debate gained attention over the difficulties in achieving the objectives set out in the Digital Decade, and with the European Parliament’s mandate to make progress on those objectives. “Europe is falling behind other regions and needs to invest massively in its telecoms network to achieve its digital goals”, these were EU Internal Market Commissioner Thierry Breton’s words on 5 June.
This mandate was formally recognized in the Declaration on Digital Rights in the following terms “developing adequate frameworks so that all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans.” Later on, the mandate was also reinforced in the Competition Report, as it “calls for the establishment of a policy framework where large traffic generators contribute fairly to the adequate funding of telecom networks”.
The internet of the future cannot run on the infrastructure of the past
The starting point is clear: Europe’s telcos alone will not be able to shoulder the massive connectivity infrastructure investments needed to reach the Digital Decade targets. This is a problem that needs to be addressed and solved. Doing nothing is not an option. Europe’s future competitiveness and prosperity hinges on getting the right connectivity infrastructure in place. At the same time, and as part of the root of the problem, there is a profound imbalance in the Internet value chain in Europe: LTGs do not pay a fair price for the delivery service of their traffic over the national fixed and mobile networks of telecom operators. Meanwhile, these services are simply provided for free.
Based on this, the expectation of telecom operators was that the debate would focus on identifying the best solution to attract needed investments. However, during the past months, the debate was geared away from a solution-oriented discourse. Instead, opponents denied the existence of the financial problem in the first place or discussing issues that would make it impossible to address the problem.
Clear inequality of bargaining power
One of the major arguments at play in the debate is the clear identification of a market failure which requires regulatory intervention, and the existence of an investment gap which requires policy action.
Telecoms operators, and in particular Telefónica, have made a concerted effort to detail this market failure, through clear economic evidence. For operators, the market failure is clear: the difference in bargaining power between operators and large traffic generators (LTGs) is preventing them from reaching fair agreements on terms and conditions of those services that operators provide to these LTGs. This leads to a situation in which the low contribution of LTGs to the financing of the networks becomes unsustainable for operators. This is despite the fact that much of these network investments are required as a result of the enormous traffic growth caused by the services of these same LTGs.
Compass Lexecon’s economic analysis confirmed the existence of the market failure, and Telefónica hopes its detailed report will help to re-focus the debate on remedying the clear market failure and accelerate Europe to a more competitive digital future.
€ 174 billions: Separating Europe from a competitive future
The European Commission’s public consultation recognised the existence of an investment gap – estimating a deficit of €174 billion. For a long time, there has been broad agreement on the investment gap deficit within European telecoms and the subsequent impact it has on European competitiveness and the future welfare of European citizens.
It was very surprising to see scepticism and immediate dismissal from certain parties from the very outset of debate into Fair Share as a viable solution. Delaying action to bridge this investment gap means condemning Europe to a loss of competitiveness and falling behind in global technological competition. Doing nothing cannot be an option.
Several additional topics have often been used to divert the discussions and sought to prevent addressing the real issues at the heart of the debate.
This has never been about net neutrality
Opponents to Fair Share frequently cite net neutrality as a reason against a fair contribution. The European Commission, the operators, and the agents involved insisted that this debate does not touch on net neutrality. This is surprising as payment relationships between content providers and telecommunications operators have always existed – there is nothing in any net neutrality regulation to suggest otherwise.
What is unique is that the market power of certain players allows them to demand the provision of a service for free. Aligning net neutrality with LTGs’ interest not to pay for services rendered is not about defending the Open Internet or Internet users’ rights to access to all Internet content.
Questionable claims stall progress in having a constructive and debate about how to solve the economic challenges in the industry.
Consumers already pay their share and Big Tech must step up
A crucial topic for discussion is the impact on end-user prices. The Fair Share proposal outlined by the operators can correct this clear market imbalance by simultaneously overcoming the investment gap and better protecting consumers.
The current telecommunications market is functioning as if it were a one-sided, where only users contribute. The proposal is to turn it into a two-sided market model, where other players benefiting from services pay a fair price for it. This new payment model would make more funds available to meet the objectives of the Digital Decade whilst reducing the pressure on end-user prices.
Expecting consumers and telecoms operators to fit entire bill is a model not fit for purpose today.
The real impact of traffic growth on network costs
The impact of traffic growth on the costs of telecommunication networks has also been questioned. Arthur.D.Little’s recent report provides comprehensive data on traffic growth in recent years and future growth prospects.
Operators invest large amounts of capital not only in deploying new network technologies and extending the coverage of existing networks, but also in increasing the capacity of existing networks to handle the ever-growing volume of traffic.
Ironically, certain companies which have very recently talked about the significant traffic and capacity requirements that new digital services such as web3 or the metaverse would require, are now denying those increased capacity needs.
Demonstrating the facts
The operators submitted all relevant data in their response to the Commission in order to provide a basis for a debate grounded in evidence.
The operators have attempted to build a comprehensive debate based on facts, evidence, and data. All these can be found in the Fair Share Initiative website, which provides all the relevant information regarding the Fair Share proposal and debate.
We want to take a constructive approach that will allow us to move forward in finding an effective solution for funding Europe’s connectivity infrastructure. Delaying the debate and doing nothing cannot be an option. Europe’s competitiveness is at stake.
Next week we will share Telefonica’s thoughts for the coming months ahead, and how we see Fair Share developing in the context of a broader focus on European telecoms and digital connectivity.