This article is part of our special report The health of Europe’s telecom sector.
Unpopular among European regulators, the European Commission’s idea of making Big Tech companies contribute to network costs has found an ally on the other side of the pond.
Last February, the EU executive presented a Connectivity Package with measures to speed up the rollout of high-capacity networks. Part of the package is an exploratory consultation referring to the senders-pay principle, which is the idea that large traffic contributors should chip in on infrastructural investments.
European telecom regulators received the initiative coldly, with the Body of European Regulators for Electronic Communications issuing a critical opinion in October saying it did not see the need for such an intervention, a common stance following the consultation.
“There needs to be some market correction in Europe,” Brendan Carr, Commissioner at the Federal Communications Commission (FCC), told EURACTIV.
“Everyone saying that the status quo is working doesn’t have their finger on the pulse on some of the comparative data between where Europe is right and where other parts of the world are.”
Investment gap
For Carr, the regulators in the US and EU share the same challenge: freeing up massive amounts of funding to finance high-speed internet service. Europe’s bar is exceptionally high, as the target is to have every person on the continent access 5G by 2030.
Carr said current estimates indicate additional investments of between €300 billion and €400 billion are needed to make that happen. Meanwhile, US operators invest about two times more per user in their networks than their European counterparts.
For the US regulator, there are various reasons behind Europe’s lagging on infrastructural investments, ranging from a more light-touch regulatory environment in the US to a fragmented market structure in Europe that lacks economies of scale.
Carr pointed to network performance starting to significantly diverge on the two sides of the Atlantic, citing the latest figures that would see the US rolling out 93% of 5G network on its national territory against 62% in Europe.
Four options
For the US regulator, there are four ways in which Europe can try to close that investment gap.
The first would be to appropriate more funding, as, for instance, the US Department of Commerce is putting $40 billion on the table to finance broadband projects. But, at the moment, there are no conditions to upscale the EU budget.
Another option would be to allow telecom companies to consolidate. While there might be some openness for cross-border consolidations, the current competition doctrine has prevented reducing the number of major operators from four to three in national markets. However, a landmark case in Spain might signal if any change is in sight in this regard.
The third way for Carr would be to encourage European telecom operators to significantly increase the wholesale costs to attract capital into network investments. However, with the costs of living already surging, there is no political appetite to raise rates in Europe.
The fourth and final option would be for large traffic providers to contribute to the network investments. Carr makes no secret this is his preferred option.
“We call this fair share. We’re looking at it very closely in the US. We think it has a tremendous number of upsides,” he said.
Senders-pay system
Since many tech companies set to fall under the scope of a potential senders-pay measure are American, the initiative has been accused of being a case of European protectionism. The US regulator dismisses this view, considering it a ‘smart’ way of incentivising investments.
“In the US, we have this system called universal service, where we assess the revenue of telecom companies to pay for building networks in rural and other sort of high-cost areas. But the telecom revenues have been declining. At the same time, these large technology companies benefit greatly from these high-speed networks,” Carr added.
The Commissioner said the FCC is also looking at this option to ensure universal service but lacks a mandate from the US Congress.
However, given the urgency to act in Europe, Carr considers that a faster way to fill the investment gap would be to put a direct payment system whereby tech companies would negotiate directly with the telecom operators.
In his view, this arrangement would not run against the net neutrality principle, as the idea is not to downgrade the traffic of traffic providers that do not strike a deal but that the question could be settled in court.
Addressing competition concerns that only large operators would be able to settle good terms with Big Tech companies, Carr said some additional guidelines could be envisaged but that private companies have a core right to negotiate at the end of the day.
Finally, the commissioner replied to the argument that the telecom companies are trying to double-dip, as consumers already pay for connectivity services. One of the ideas on the table is to ask tech companies based on their advertising revenues, as that’s clearly not a service for consumers.
“A two-sided market makes a lot of sense,” he concluded.
[Edited by Alice Taylor]
