EU Flirts with Ending Net Neutrality to Squeeze Money for European Telcos from US Big Tech

Margrethe Vestager, European Commissioner for Competition (pictured) has told journalists that US tech giants like Google and Netflix may be forced to pay a ‘fair contribution’ towards the cost of upgrading networks in the European Union, reports Reuters.

I think there is an issue that we need to consider with a lot of focus, and that is the issue of fair contribution to telecommunication networks. Because we see that there are players who generate a lot of traffic that then enables their business but who have not been contributing actually to enable that traffic. They have not been contributing to enabling the investments in the rollout of connectivity.

Vestager’s comments come after the European Telecommunications Network Operators’ Association (ETNO) commissioned a report from Axon Partners that claims there is a fundamental ‘imbalance’ in the market for internet traffic. The report names six big US tech companies – Amazon, Apple, Google, Meta, Microsoft and Netflix – whose over-the-top (OTT) use of internet infrastructure accounts for more than half of all global online traffic. ETNO and Axon argue these US firms are getting too much of a free ride whilst effectively forcing telcos to continually increase spending on internet capacity.

…most of the data traffic growth over the last decade has been driven by a small number of leading Over-The-Top (OTT) providers, with little or no economic contribution to the development of national telecom networks, who now account for over 55% of all network traffic. A recent study by Frontier has estimated that – just looking at the picture today – traffic driven by OTTs could generate costs of up to €36-40 billion per year for EU telcos.

The report goes on to argue that “telecom network operators are in no position to negotiate fair commercial terms for their networks’ ever-increasing use by the leading OTTs” and that…

…€20 billion by OTTs to the development of telecoms infrastructure in the EU would raise GDP by as much as €72 billion by 2025, with a parallel increase in employment of up to 840,000 jobs annually; positive effects on both user experience and innovation levels; and a steep reduction of energy consumption and carbon emission levels.

Thierry Breton, European Commissioner for the Internal Market, effectively confirmed the Commission’s determination to squeeze money from the US tech platforms in a tweet which said obtaining fair remuneration for telcos is a ‘principle project’.

Alex Towers, Director of Policy and Public Affairs at BT, argued that the UK was in danger of ‘falling behind’ the reforms being considered by the EU. Towers published a LinkedIn post that argued Brexit means the UK should race ahead by scrapping the ‘old EU regulation’ that prevents charging of tech platforms. The comments made by Towers continued a pattern where supporters of ETNO’s proposals argue for the curbing of net neutrality rules without referring to net neutrality by name. An intense debate on social media subsequently led Tanja Salem, Director of Economics at BT, to clarify:

…we might differ on the current causes of the distortions we see today (who drives traffic demand and the current regulatory restrictions on charging for it). And for the UK we have not yet worked out a consensus position on what the solutions might be. Key to this must be: proportionate net neutrality rules.

Some opponents of ETNO’s position said it was wrong to argue for a simplistic relationship between the amount of traffic carried and the cost of providing network capacity. Industry analyst Dean Bubley commented:

This is a ridiculous suggestion by Vestager… a lot of “data traffic” growth is unrelated to costs… a lot of network investment has been for coverage, not capacity increments.

Christian Borggreen, Vice President of the Computer and Communications Industry Association (CCIA), a lobbying group for big tech firms, slammed the ETNO proposals via a press release:

Operators are already being paid by their customers. It now seems like telcos want to double-dip in an attempt to make online content and service providers pay for internet traffic in spite of Europe’s long standing commitment to net neutrality.

Thomas Lohninger, Executive Director of epicenter, a digital rights NGO, and a Senior Fellow of the Mozilla Foundation, said imposing charges on big tech firms would ‘destroy’ net neutrality.

It is startling the extent to which supporters of the ETNO proposals seek to avoid any mention of net neutrality whilst most of their opponents bring up net neutrality at every opportunity. The only critics of the ETNO proposals that feel no need to refer to net neutrality are those who have a detailed appreciation of the business of running networks, such as Bubley. Professionals like Bubley want to encourage a rational approach to decision-making that identifies the genuine drivers of costs and hence focuses on realistic ways to maximize investment. They do not need to resort to vague bloviation about net neutrality principles and moral harm because they are competent to discuss how technologies work and how businesses are run. Bubley and other knowledgeable commentators have my sympathy at an intellectual level. However, they miss the essential factor in determining policies like these. Politicians and technocrats will embrace wild, foolish and irrational arguments if it suits them personally, and that depends on the beliefs and prejudices of the voters, lobbyists and financial backers they must keep happy.

Policy decisions about redistributing money from one place to another place are not based on a finely-crafted appreciation of how to generate the best return on investment. They depend on many emotional factors, such as public perceptions about who is greedy, who needs help, and what is fair. This is why the European Commission will frame any debate about redistributing money from US tech firms to European telcos as being essential for fairness. They will surround their demands with deliberately vague and indirect concepts like social justice (and the need to protect the climate) not least because they know they are tackling a lobby that has successfully done the same thing in the past.

It is not in the public interest for policymakers to live in the pockets of big businessmen, but nor is it helpful that the public debate surrounding net neutrality has long been dominated by hyperventilating charlatans who are willing to use any emotional ploy to cause alarm. A sensible deliberation about how best to pay for infrastructure has already been made impossible because of a deliberate and conscious campaign to provoke moral panic about the state of free speech and democracy in Western countries. In that context, it is not unreasonable for telcos to want to sway public opinion by naming those big businesses that gain most from net neutrality, especially as it has since become fashionable to exaggerate the threat that those tech firms pose to free speech and democracy. I lost count of the number of senior telco decision-makers I came across who were so carried away with the public frenzy about net neutrality that they seemingly failed to apprehend the fundamental question that motivated the debate: who pays for networks. This is unforgivable for executives who receive handsome compensation in exchange for serving their shareholders. However, it is also easy to see why those with less intellect could be dazzled by popular comedians who described net neutrality as “preventing cable company f**kery” and by popular politicians like Barack Obama who stated the only choice was net neutrality or the end of the internet as we know it.

The US-centered, Google-financed, self-indulgent hysteria surrounding net neutrality used to be so pervasive that the unimaginative, lackluster technocrats who formulate EU policy were bound to support to net neutrality rules for Europe too. You may recall that many advocates insisted that net neutrality is vital for small businesses to thrive and hence become the next Google or Facebook. That argument will no longer persuade as many Europeans as it did before; slavishly following a US paradigm for net neutrality has not led to a proliferation of alternatives to the big US tech corporations that dominate key markets. A lot has changed since the EU lazily followed the US by adopting similar policies on net neutrality. Supporters of net neutrality crucially relied upon public distrust of big businesses to push their agenda, even though that agenda was clearly financed by big tech firms whose goal was to crush any plans like those recently reawakened by ETNO. They relied upon big telco businesses being unfashionable, and that proved to be an effective strategy. Their problem is that big tech firms are now even more unfashionable, especially in Europe, where protectionists can highlight how much money is made by US firms that have developed a reputation for abusing European laws and avoiding European taxes.

Technophiles who believe net neutrality has something to do with protecting free speech belong in the same category of dupes as Russians who think a war is needed to protect Ukrainians from Nazis and Germans who thought that depending on Russia for energy would guarantee peace in Europe. Economists working for Google, BT, Deutsche Telekom and Apple were never engrossed in a debate about the quality of democracy, no matter what erroneous claims were proffered by politicians and other kinds of entertainers. These corporate economists were each looking for ways to justify a shift of economic burdens from one company to another. US and European politicians who said free speech requires rules over the sequence for processing packets are like German politicians who said voters should want cheap Russian energy to maintain peace, or like Putin telling Russians that his megalomania is motivated by a desire to protect them from foreign aggression. These arguments may be persuasive, but they have never been true, nor were they ever believed by the people who gained most by repeating them. They bear no relationship to the real motivations of these politicians or the organizations that influence them.

Communications infrastructure is a public good where it is difficult to measure the benefits enjoyed by each separate person, organization or business. That complicates the process of deciding a fair way to pay for networks. Too many politicians waded into the debate in a foolish manner, revealing they were more concerned with fashion than with delivering the best results for the future. Critics are right to observe that ETNO’s new arguments are much like old arguments about who should pay for network investment. Having been rejected once, there is no logical reason to consider these arguments again. However, decisions like these are not made for logical reasons. Those supporters of net neutrality who thrived by exploiting mindless fashion have no grounds to complain when the cycle of fashion turns against them. ETNO’s proposals to make US tech firms pay for European networks may be crude and wrong, but they are no worse than the hyperbolic guff spewed by many supporters of net neutrality.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.