Big Tech firms should pay ISPs to upgrade networks, telcos in Europe claim

The CEOs of 13 large European telecom companies today called on tech giants—presumably including Netflix and other big US companies—to pay for a portion of the Internet service providers' network upgrade costs. In a "joint CEO statement," the European telcos described their proposal as a "renewed effort to rebalance the relationship between global technology giants and the European digital ecosystem." The letter makes an argument similar to one that AT&T and other US-based ISPs have made at times over the past 15 years, that tech companies delivering content over the Internet get a "free" ride and should subsidize the cost of building last-mile networks that connect homes to broadband access. These arguments generally don't mention the fact that tech giants already pay for their own Internet bandwidth costs and that Netflix and others have built their own content-delivery networks to help deliver the traffic that home-Internet customers choose to receive. Today's letter from European ISPs was signed by the CEOs of A1 Telekom Austria Group, Vivacom, Proximus Group, Telenor Group, KPN, Altice Portugal, Deutsche Telekom, BT Group, Telia Company, Telefónica, Vodafone Group, Orange Group, and Swisscom. They wrote:

Large and increasing part of network traffic is generated and monetized by big tech platforms, but it requires continuous, intensive network investment and planning by the telecommunications sector. This model—which enables EU citizens to enjoy the fruits of the digital transformation—can only be sustainable if such big tech platforms also contribute fairly to network costs.

Growing calls for payments from Big Tech

The European telcos didn't mention any specific tech giants, but Reuters wrote today that "US-listed giants such as Netflix and Facebook are companies they have in mind." The letter also discusses other regulatory topics related to fiber and mobile broadband, saying that "regulation must fully reflect market realities... Namely, that telecom operators compete face-to-face with services by big tech." The European ISPs' letter isn't the only recent example of ISPs claiming that tech giants should help them pay for network upgrades. "South Korean Internet service provider SK Broadband has sued Netflix to pay for costs from increased network traffic and maintenance work because of a surge of viewers to the US firm's content," Reuters reported on October 1. The traffic surge was driven in part by the show Squid Game. The Seoul Central District Court ruled against Netflix in a related case in June, finding that it is "reasonable" for Netflix to be "obligated to provide something in return for the service" provided by SK, Reuters wrote.

BT annoyed by net neutrality

The CEO of BT Group's consumer division, Marc Allera, recently argued that net neutrality rules should be changed to let ISPs demand payments, as The Guardian reported on October 10:

Allera says the rules that stop companies such as BT from passing on some of the costs to the biggest drivers of the capacity growth—net neutrality rules that stipulate that all Internet traffic is treated equally—are outdated for the streaming era. "A lot of the principles of net neutrality are incredibly valuable, we are not trying to stop or marginalize players but there has to be more effective coordination of demand than there is today," he says. "When the rules were created 25 years ago I don't think anyone would have envisioned four or five companies would be driving 80 percent of the traffic on the world's Internet. They aren't making a contribution to the services they are being carried on; that doesn't feel right."

The Guardian article said the companies driving 80 percent of the traffic were YouTube, Facebook, Netflix, and Activision Blizzard, but it isn't clear where that data came from or whether it's accurate. A May 2020 report by the vendor Sandvine found that YouTube accounted for 15.9 percent of home-Internet traffic globally during the first months of the pandemic, compared to 11.4 percent for Netflix and 3.7 percent for Facebook. All video streaming combined accounted for 57.6 percent of traffic. Social networking accounted for 10.7 percentm and general Web browsing clocked in at 8.1 percent. The entire gaming category accounted for 4.2 percent, slightly less than the "marketplace," "messaging," and "file sharing" categories. Of course, those numbers are probably a bit different now, but it doesn't seem likely that four companies account for 80 percent of all Internet traffic worldwide.

FCC Republican claims Big Tech gets “free ride”

In the US, Netflix users suffered poor streaming performance in 2013 and 2014 until the streaming giant agreed to pay Comcast and other ISPs for direct connections to their networks (aka "interconnection"). Similar disputes between consumer ISPs and middle-mile network operators like Cogent and Level 3 pretty much ended in mid-2015 when the Obama-era Federal Communications Commission imposed net neutrality rules and common-carrier regulations on the broadband industry. The Trump-era FCC eliminated those rules when it deregulated broadband. There haven't been any recent public demands for additional payments from US-based ISPs. But Federal Communications Commission member Brendan Carr, who was part of the 3-2 Republican majority that eliminated net neutrality rules, has been making a similar case. Carr wrote a Newsweek opinion piece in May with the title, "Ending Big Tech's Free Ride." "Big Tech has been enjoying a free ride on our Internet infrastructure while skipping out on the billions of dollars in costs needed to maintain and build that network," Carr wrote. Carr made his claim that Big Tech gets a "free ride" without mentioning any of the large network projects that Big Tech companies have undertaken themselves, such as Google building data centers and direct connections to ISP networks around the world. Carr urged Congress to "enact legislation that ensures Big Tech contributes an equitable amount" toward federal broadband-deployment grants that will pay ISPs to expand networks in unserved and underserved areas. Carr also urged the FCC to raise money for the Universal Service Fund by "shifting a fair amount over to Big Tech."

Online advertising tax discussed in US

The Universal Service Fund that distributes money to ISPs has been paid for by Americans through fees on their phone bills for decades. The model is widely seen as outdated, and there has been debate over the years about updating it to include fees based on broadband revenue. Any proposal to shift fees from phone service to broadband would likely be controversial because ISPs would pass along cost increases to broadband consumers. Economists Hal Singer and Ted Tatos recently examined the options in a 53-page study. While Singer and Tatos did not echo Carr's claim that Big Tech gets a "free ride" on the Internet, they found that a tax on online advertising would raise the necessary funds without increasing the prices consumers pay for broadband. "[W]e conclude that assessing a service fee on digital advertising revenues constitutes the best policy option according to our economic criteria," they wrote. "Digital advertising revenues are expected to grow significantly over the coming decade, which allows the contribution factor to be relatively modest. Moreover, unlike a fee levied on ISPs, digital advertising platforms are less capable of passing through the fees on end users... In any event, the digital advertising fees would be unlikely to raise the price of broadband service, as would a fee levied on ISPs." But there is significant support for collecting Universal Service Fund fees from broadband providers. Today, over 250 organizations including various public-interest groups, trade associations, and small telco providers called on policymakers to make that happen. They wrote that "the USF fee has spiraled from about 7 percent to around 30 percent over the last two decades and could exceed 40 percent in the near future." Adding broadband revenue to the contribution base "would lower the USF fee to less than 4 percent for the foreseeable future" and fix the current problem that some users "pay a disproportionate amount compared to others, even when using similar services," they wrote.