Last month, the telecom industry issued another plea for large technology companies to contribute to the cost of deploying the networks that underpin their services.
A joint statement from two influential bodies — the GSMA and ETNO— as well as several national associations called for “shared responsibility across the digital ecosystem” to meet targets for roll-out of 5G and gigabit broadband networks.
The point of the message is that making vast upfront investments in mobile spectrum and network infrastructure is unfair and unsustainable without contributions from the small number of companies that account for the lion’s share of use. Without support, it becomes much harder for providers to deliver high-capacity networks and narrow broad digital divides.
This isn’t a new debate. But comments in May 2022 from the EU’s digital chief Margrethe Vestager seemed to offer the first signs of welcome support for operators’ grumbles. She pointed out that operators invested €500 billion in European networks over the past decade. Meanwhile, the top six tech companies made a negligible contribution despite generating 57% of traffic — as seen in the chart below.
Proportion of global network traffic by company in 2021
Source: Axon based on Sandvine
It’s hard not to have some sympathy with operators; they continue to see meagre revenue growth and poor stock market performance, despite a seemingly never-ending thirst for their services and their having done a stellar job keeping everyone connected in the pandemic.
There’s a clear imbalance between heavily regulated network operators and the thriving web platforms that rely almost entirely on the connectivity the former provides.
But operators play the sympathy card far too easily. The harsh reality is that they’ve been hopeless at monetizing demand, hesitant to commit to innovation and complacent about the threat from other companies. Quick to complain about fairness, network providers rarely mention how they exploited international travellers for years with unwarranted roaming charges.
I’m unconvinced about whether forcing big tech to invest in networks is even justified. Without content, operators’ services become far less relevant — that’s why many have chosen to pal up with the likes of Netflix and Amazon to sell customers higher-priced bundles. In many ways, operators’ very existence depends on successful partnerships with the companies they’re now trying to penalize.
For now, forcing big tech to shoulder the cost of network deployment is contradictory to Europe’s stringent Net neutrality laws. Existing regulation would be watered down by any plan to impose charges on companies such as Google and Amazon. Updating the principles of Net neutrality was a topic raised by Marc Allera, CEO of BT Consumer, when I interviewed him for our Predictions event last year. He argued that it was a necessary step in maintaining service quality by helping operators control huge volumes of traffic at peak times.
But if operators got their wish, it could quickly backfire. What would stop content providers bringing in retaliatory charges of their own? And if they’re forced to pay it could mean lower internal investment and poorer quality of service, having a knock-on effect on operators and their customers. Big tech may even find it reasonable to claim a small equity share in the networks they’re supporting, proportionate to the size of their investment.
In fact, I even see a counter-argument where operators should be contributing to some of the huge investments made by big tech. Netflix, for example, reckons it’ll spend over $17 billion on content this year, up 25% from 2021. That’s more than twice Vodafone’s entire capital expenditure for its fiscal year ending March 2022.
Amazon splurged $65 billion on capital expenditure in the 12 months up to June 2022. It said that about half of this was allocated to Amazon Web Services, the company’s cloud and IT unit (see Instant Insight: Amazon Results, 2Q22; for more information on this service, contact us); many operators are desperate to partner with the business to reduce their IT costs and foster new opportunities with 5G in enterprise. Google and Microsoft are also investing significantly in cloud services, and network providers will be among the major beneficiaries.
As unworkable as the idea sounds, we should keep an open mind. European authorities will be keeping a close eye on South Korea, where multiple bills have been tabled in parliament to restrict tech companies — or even to make them pay for ballooning network use. In October 2021, regional operator SK Broadband sued Netflix after it saw massive spikes in traffic from people streaming popular drama Squid Game. A high-profile court battle saw the US company hit with a $22 million bill. In appeal Netflix accused SK Broadband of seeking to benefit from double-charging, pointing out that it already receives income from customers paying for their Internet connection. It also highlighted the positive impact made by Netflix on the South Korean economy; it claims to have boosted GDP by more than 5 trillion won (€3.7 billion) since 2016 and created 16,000 jobs.
Closer to home, several European countries are mandating that streaming providers support local content production. In June 2022, the Dutch government proposed that companies making more than €30 million annually in the Netherlands invest 4.5% of that revenue in local films and TV series.
Although the idea of big tech subsidizing network roll-out appears wishful thinking, I believe a regulatory shake-up for Europe is overdue. It’s crucial that the region creates greater incentives for investment in connectivity and technology innovation; otherwise, it may fall further behind North America and Asia–Pacific. Mobile spectrum is a good example. From 2G to 5G, governments have been gleeful at the prospect of sequestering money that could have been invested directly into better telecom infrastructure.
Some executives point to early signs of a more sympathetic stance, and there’s some evidence to support this. Spain, for example, has proposed telecom reform through longer spectrum licences and tax relief on network deployments, an apparent recognition of the role connectivity can play in improving a country’s overall prosperity.
But the litmus test on whether sentiment is really shifting focusses on market consolidation. If the recently agreed merger in Spain between Orange and MasMovil gets the go-ahead, it could open the floodgates to other European deals. This would be a massive regulatory U-turn after a flurry of mergers fell through on competition grounds several years ago.
Operators have moaned about regulation for years — although their latest proposals are founded on questionable logic, the time has come for them to be shown greater leniency. Deep down, I wonder whether operators really believe they have any chance of pushing big tech to contribute to their networks. Perhaps it’s just another effort to nudge regulators more toward their side. And if that’s the real aim, it might just work.
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