EU asks who should fund future networks, as telcos eye Australia-style Big Tech bargaining code

The European Union has kicked off a consultation on how to fund the “massive” upgrades to Internet connectivity which regional lawmakers believe are needed for the bloc to make the most of transformative technologies like AI or immersive virtual worlds while delivering on the big bang, cross-industry digitization it also wants to characterize the next decade — to both push the envelope on green goals and secure the region’s economic fortunes into the future.

The question is who will end up paying for the necessary infrastructure upgrades? And what might high-level decisions about connectivity infrastructure mean for digital innovation generally and for web users’ access to online services?

While the Commission hasn’t yet settled publicly on an approach to the question of funding network infrastructure into the future it appears to be leaning towards a telco industry proposal which wants a handful of major tech companies — whose services are fingered as generating the most traffic across fixed and mobile pipes, currently — to stump up a contribution for upgrades.

The names generally being bandied about are: Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft and Netflix.

But one question attached to the proposal is where exactly the threshold line for “big traffic generator” would fall? (And, flowing on from that, what’s to stop a levy on ‘Big Bandwidth’ from rippling out across the ecosystem? Since most of the aforementioned tech giants are also providers of key digital infrastructure to other businesses, whether through cloud computing resource or mobile app stores and other types of marketplace…)

A version of the idea of carriers getting to charge, not just consumers, but so-called “over-the-top” players for network usage (which critics argue is simple double dipping) has been kicking around for years in telco circles. But this Commission does appear to going sweet on the idea.

Earlier this month, Reuters reported that the EU’s internal market commissioner, Thierry Breton, will give a speech on matter next week — at the annual telco shindig, Mobile World Congress (MWC) in Barcelona — a choice of stage that seems to signal implicit support for the carriers’ proposal.

There’s more today, too: Announcing the publication of the consultation, Breton tweeted a Netflix playlist-style meme that explicitly repeats the language of telco lobbyists — who are spinning their call for  Big Tech to fund network costs as a “fair share”.

Breton, a former CEO of France Telecom, has made policymaking focused on digital infrastructure and getting Europe’s data flowing a centerpiece of his agenda within the Commission. His office confirmed his upcoming attendance at MWC, telling us he’ll give a keynote at the conference on Monday morning. So, given the EU has announced the consultation step now, he’ll surely want to animate his stage turn with something fresh. (And carriers will clearly be hoping to hear more explicitly supportive words for their long-held dream of making Google et al pay them to reach consumers in Barcelona next week.)

His tweet today links to the EU’s “exploratory consultation” on network infrastructure funding — which the Commission says is seeking views to inform “the most appropriate actions for the future of the electronic communications sector”, as its official PR (more dryly) frames it.

In its introduction to the network funding consultation, the EU summarizes its rational here — writing: “New generations of mobile communications will require massive investments in fibre and densification of antennas. New performance will enable critical use cases and the connection of objects. These developments will likely have a significant impact on the business model of providers of electronic communications networks… as well as of other actors in the value chain. In light of this, it is important to broadly reflect on how to secure a resilient connectivity architecture based on a sustainable business model able to support our digital future in the EU.

“Now is therefore a key moment to have a comprehensive look at the connectivity sector and investigate where it stands, and what would be the needs for the future. The European Commission therefore launches the present exploratory consultation on the vision for the future of the connectivity sector and of the connectivity infrastructure.”

Fleshing out its thinking during a press conference earlier today, Breton emphasized how technologies underpinning connectivity are evolving, pointing to more bandwidth hungry services popping up and gobbling up data, that he suggested are driving this infrastructure disruption and putting new pressure on carrier returns — and which he suggested demand a centralized policy response.

“There are going to be significant changes so it’s a recast of how we think about these different architectures,” he said of the future of network tech, adding: “The architecture of telecoms networks are going to be transformed — these are going to become platforms.”

While he paid lip-service to the idea that higher quality services developed by Internet companies are serving the interests of web users, he segued immediately into “questions about what we call the fair share of the financing of the next generation of connectivity infrastructures” — which is certainly an interesting moment for a choice of that plural pronoun.

“All of this reflection isn’t aimed against anyone at all — rather it’s for our fellow citizens. So as to bring connectivity, so as to bring innovation, so as to bring possibility to our businesses and so as to bring the best of connectivity to them,” he went on, apparently anticipating attacks on the Commission for pushing an anti-US agenda on tech policy — if indeed the consultation leads to an EU proposal for US tech giants to help fund European network upgrades.

Breton also took a moment to stress that the Commission is approaching this issue with a full eye on net neutrality — as a “key principle” of its approach to connectivity, both now and in the future.

Critics of the telcos’ call for Internet companies to pay based on service popularity have repeatedly raised the spectre of risks to equal delivery of services (and thus to a fair and open Internet), since some form of network usage levy could favor companies with the greater resource to pay, including those which can absorb extra costs rather than passing them onto their users.

What exactly the EU’s proposed network funding mechanism might be isn’t yet clear. In the consultation questionnaire, which is highly detailed — extending to some 60 questions, many of which invite data-heavy responses and ask for additional explanatory remarks — the Commission suggests a few options, including a dedicated EU-wide fund for affordable broadband or network rollouts in rural areas; and direct payments from all digital service providers or from a sub-set of so-called “large traffic generators”.

A section entitled “fair contribution by all digital players” (a title that’s sure to warm operators’ hopes) kicks off with a prediction that “the amount of data exchanged — and harvested — is larger than ever and will increase, as the global consumer internet traffic has grown with 34.4 % CAGR since 2015”, pointing to “the metaverses [sic] and virtual worlds, the rapid move towards cloud, the use of innovative technologies online [as] making this even more evident” — although not to any data-points quantifying future consumer appetite for metaverse/s tech et al — before setting out the seeming “paradox between increasing volumes of data on the infrastructures and alleged decreasing returns and appetite to invest in network infrastructure”. So far, so telco friendly…

The Commission then lays out (at rather shorter length) the counter case — i.e. the one made by content providers against payments for accessing networks to deliver content (as being “unjustified”; that network costs are not necessarily traffic sensitive; plus the risks it could create for an open Internet) — before also referencing other stakeholders it concedes are counselling “caution against rushed regulatory intervention”. So, clearly, there is a spectrum (ha!) of views on what kind of intervention might be needed or even whether centralized action is a good idea at all at this stage.

During the press conference, Breton kept his powder fairly dry, saying only: “Our aim is to encourage and target the necessary investments for digitalization of our continent and in this context to identify — if necessary — new mechanisms like a contributions mechanism which will guarantee a broader, more quick deployment of very high capacity networks but of course, as I said, competition has to be the driver of innovation.”

The EU’s consultation on the topic runs for 12 weeks, with the deadline for contributions being May 19, 2023 — after which the Commission says it will “report on the results”; and, potentially, come forward with a policy proposal. (If it does, one hard deadline is for this Commission itself, whose term will be up in 2024.)

Speaking to TechCrunch ahead of the publication of the EU’s consultation, the telco operator association, the GSMA, said it’s not aware whether or not the Commission is now leaning in favor of some form of Big Tech levy to fund network upgrades — nor, indeed, how any such proposal might play with the wider EU decision-making process which any legislative proposal would need to pass through to become law.

But it seized on the high level attention to network funding as a sign Brussels might be preparing to step in.

“I think the fact that the European Commission has shown leadership in starting this discussion is itself a monumental signal of leadership,” said John Giusti, the GSMA’s chief regulatory officer. “Because this is the first time that we have a significant entity saying: ‘Look, we have a different digital marketplace today than we did in the past. And we know there are huge players that are benefiting in different markets, and not necessarily investing in those markets. So what should we do about it?’”

Giusti told TechCrunch the European operator position on network funding favors an EU regulation that would take a similar approach to one pioneered by lawmakers in Australia, two years ago — when the country passed a bargaining code on Google and Facebook that required the platforms to negotiate with local news publishers over remuneration for reuse of their content, with the threat of a binding arbitration process kicking in if licensing deals don’t get done.

Evidently, European carriers would very much like to be able to lock FAANG giants in a room with a (legal) requirement to hash out payment terms.

“I have no idea what the Commission will actually ultimately do, of course, and nothing is ever exactly as any one player wants. But we would like there to be an EU regulation that ensures that the largest traffic originators, those creating more than 5% of the yearly peak traffic on network, have to come to the table to agree commercial terms pay a fair price for data transport, for the purpose of network expansion, infrastructure investment in Europe,” he said. “And if that can’t be — if a commercial agreement for any reason couldn’t be reached — then you’d have a final offer arbitration scenario with some sort of existing structure that would be the arbitrator.”

But zooming out, isn’t this just the same old long-standing telco complaint about over-the-top players skimming off all the cream while carriers are saddled with the fixed costs of running pipes that carry others’ (delicious) milkshake — which at base, critics contend, glosses over fundamentally different approaches to technology (and culture), and downplays telcos’ failure to seize opportunities to innovate around services themselves, in favor of focusing on milking their own users via existing infrastructure?

What’s the radically changed reality that transforms a tired old telco gripe from way back when into a “fair” and future-focused ask today? The answer, as carriers tell it, appears to boil down to an argument that great (market) power demands new infrastructure responsibility. Or that big-ness itself justifies a popular service tax. Which is an idea that — if indeed it flies — will do so on the coat-tails of Big Tech’s tattered reputation for sharkishly anti-competitive operation.

So perhaps the tech giants’ expertise in profit shifting and value extractivism is finally catching up with them in Europe.

“The realities of today’s market is there’s a significant market [power] imbalance between the big traffic generators and the European operators. So all we’re asking for here is that the European Commission take action to address this market imbalance, to bring them to the table to agree how do we strike an arrangement so that those generating the most traffic, those generating the greatest benefit for themselves from European consumers, are contributing to European infrastructure investment. So, basically, the key thing is to make sure that there is a mechanism to bring them to the table,” said Giusti.

“The problem is… the largest traffic originators have no incentive to come to the table. So why don’t we tackle the problem we know is there — rather than creating a lot of new mechanisms with a lot of new dynamics that could complicate investment in Europe. It’s the operators are having to invest in the network to respond to the capacity generated from these players. So it’s probably easiest and cleanest to have the largest traffic originators come to the table with the European telcos and agree — what makes sense, what contribution should they make to cover the extra traffic that they generate?”