EU regulators are considering whether to require major technology firms to pay to use telecom networks.
The liberalization of telecoms in the European Union from the 1990s onwards ushered in a transition from monopoly to competition. This process can be regarded as a success. In part, this has been due to appropriate regulation, which is based on economic freedom, competition, universal service, technological neutrality, and innovation.
It is true that telecom firms have been fueled by the technological revolution. But telecoms make up a complex sector, and new firms face high barriers to entry and sunk costs. This is why a policies promoting competition have been applied, allowing third-party access at regulated prices. Incumbent operators had to pay a high price for having been monopolists. They were required to contribute to the creation of competition.
Regulation, however, was not intended to be permanent. To this end, national telecom agencies were tasked with periodically analyzing the market to check whether competition had been achieved. This has enabled regulation to be phased out as the market matured. In less than two decades, the number of markets in Europe susceptible to ex-ante regulation has been reduced from 18 to 2. Regulation is now limited to some wholesale markets and access to civil engineering infrastructure, which facilitates the deployment of new networks.
In short, the legal framework for telecommunications in Europe provides has remained stable for almost three decades in part because it is capable of adapting to the evolution of the sector. In doing so, telecoms have contributed to the development of a technology-driven society and economy, with near-universal broadband services, highly competitive and increasingly deregulated markets, and low prices.
And yet, the situation described above is only part of the reality.
The fact is that an internal telecommunications market does not really exist. Europe is not the United States. Under the umbrella of the same EU regulation, markets have remained national. There are only a few operators present in several countries and many more national companies. There is no easy solution to this situation. In mature markets such as exists in telecommunications, high regulatory barriers make it difficult for operators to grow in other countries and merger control by competition authorities impedes consolidation in national markets.
To this must be added the sector’s black swans.
On the one hand, European policy has encouraged a model of vertically integrated operators, which is now crumbling. No one knows whether the emergence of wholesale-only operators, such as tower managers, will be consolidated or
temporary because telecoms need to reduce debt. It also remains to be seen to what extent Big Tech will continue to invest in infrastructure (so far they have only invested in submarine cables) or enter into the provision of telecom services (for example, Amazon plans to offer a low-cost mobile phone service in the US).
On the other hand, technology enables the unbundling of networks and services. This means that online operators provide a growing number of services such as software, computing, management, storage, and artificial intelligence. Telecoms must compete and provide such services to avoid their role being reduced to only providing connectivity. Industry could also manage directly the infrastructure supporting the internet of things, thereby bypassing telecom operators.
These are not easy times for EU telecom operators, which have to invest huge amounts of money in new networks while continuing to decapitalize. In this context, EU regulators are assessing whether Big Tech should be obliged to pay for the use of telecom networks—the so-called “fair share” or “telco” tax.
It is argued that because Big Tech firms, including Netflix, Google, Facebook, Microsoft, Apple, Amazon, use more than half of the available bandwidth and are the most intensive users of the telecommunications network, such firms should therefore contribute to financing future telecom networks. On the other hand, Big Tech argues that it is their services that give value to the use of the network.
In the United States, the principle of net neutrality has been a battleground between Republicans and Democrats for decades. Net neutrality requires that internet service providers provide access to all websites at the same speed and do not block or give preference to particular content. Federal Communications Commission policy has varied according to the governing majority. In Europe, regulation affirms net neutrality but it also allows operators prudent management of their networks.
The point is that “fair share” regulation does not involve network traffic management, so it has nothing to do with net neutrality. “Fair share” regulation aims to allow operators to make a return on their investments but would not interfere with the traffic flowing over the network. Thus, it does not pose the same problems as the principle of net neutrality, which maintains the internet’s open character by requiring that all internet traffic be treated equally. Strict application of this principle would prevent telecoms from charging online operators for reserving bandwidth for the provision of their services.
“Fair share”-like measures are not alien to regulation. In fact, in Spain, telecoms have had to contribute to the financing of public television without advertising, in the same way that commercial televisions finance the production of European movies. But such measures can only be introduced if they respond to objective reasons and are appropriate, necessary, and proportionate.
Big Tech’s contribution could be implemented in different ways. For example, Big Tech could contribute to a fund that finances the construction of new networks. Regulation could also oblige Big Tech to make a reasonable contribution to the financing of networks. This could leave room for negotiation between the parties, with the regulator intervening if disagreements arise.
Europe would not be the first to introduce such a measure because South Korea previously adopted “fair share” telecom regulation. The European Parliament also seems to support “fair share” regulation. Moreover, the Internal Market Commissioner might share the concerns of telecom operators, due to his past at Orange and France Telecom.
But the European Commission has not defined its position so far. Member states are divided on the issue. There are also doubts about the effectiveness of these measures and their likely impact on consumers, who could end up footing the bill. The answer will be known in the coming months.