Network Fees Rejected: What Stakeholders Responded to the European Commission’s Consultation
Last Friday marked the deadline of the European Commission’s exploratory consultation on the future of the electronic communications sector and its infrastructure, which explored incumbent telecom operators’ demands for “fair share” payments, among others. The consultation page still provides no information as to when responses will be published. Luckily, several stakeholders independently made their contributions public.
Based on available public information, a clear conclusion can already be drawn: it is only incumbent telecom operators, and their affiliated backers, that are in favour of introducing network usage fees. A majority of stakeholders – NGOs, the media sector, academics, regulators, and many others – are all united in their opposition to the highly-contested idea.
A common denominator that keeps coming back in nearly every stakeholder response is the widely-held doubts about the consultation’s underlying assumptions. As the NGO Internet Society puts it: “Many of the consultation’s questions are based on a factually-flawed premise. […] The consultation also presumes there is a problem that needs to be ‘solved’ but fails to provide any evidence of its existence.”
Regulators’ strong reservations about network fees
BEREC, the body of European telecom regulators, decisively rejects big telcos’ claim that network fees would help the EU reach its 2030 connectivity targets. “It is questionable that mandatory payments from [content and application providers (CAPs) to internet service providers (ISPs)] would lead to Member States meeting the connectivity targets.”
Network fees cannot “ensure that additional funds (if needed) go to countries/areas which are currently undersupplied. On the contrary, it is rather likely that ISPs in already well supplied areas would benefit the most,” the body of regulators argue.
BEREC also underlines the high competitiveness of the IP interconnection market, and warns that network fees are “likely to lead to competitive disadvantages for small ISPs and small CAPs.” Through such mandatory payments, “ISPs are likely to be able to discriminate and self-preference their own services (e.g., related to streaming or cloud) […] and the payment may not incentivise the deployment of new infrastructure.”
When it comes to the negative impact on consumers, BEREC reiterates that network fees risk having a detrimental impact on the price of content, quality of services, SMEs, and the price of internet access. Moreover, limiting financial contributions to large CAPs only “might either not be possible in practice or may violate the general non-discrimination principle” and would affect “SMEs, if large CDNs and cloud services also had to pay and would pass-on higher costs to their customers,” cautions the EU regulators’ group.
NGOs warn against impact on net neutrality and consumers
Digital rights groups are strongly against the introduction of network usage fees, for reasons that range from its inherent – and unsolvable – contradiction with net neutrality, to the detrimental impact that network fees will have on European consumers. In its contribution to the exploratory consultation, the NGO Epicenter.works reminds the Commission that network fees “simply cannot be done without infringing on net neutrality”.
The Internet Society echoes: “The introduction of a mandatory payment mechanism would be directly inconsistent and incompatible with [net neutrality] obligations, with direct harm to consumers as a result. For instance, enforcement of the new obligation would give ISPs the right to treat traffic differently, e.g., by allowing them to block, or in other ways penalize, services that do not wish to pay the ISP. In consequence, users would no longer have access to an open Internet, but would be limited to the services that have concluded an agreement to pay their ISP.”
Eventually, end users would suffer most if big telcos get their way. “Consumers will be hurt by poorer service quality and higher prices. SMEs will also face higher prices and a deteriorating service quality as network topology adapts to this artificial price regulation. The cost of innovating in Europe will increase and the resilience of the overall internet could fall below required levels to overcome a potential next crisis. Smaller ISPs currently do more for network development than incumbents, yet they will be hit particularly hard in their ability to compete,” according to Epicenter.works.
Media plurality under threat according to broadcasters
The European Broadcasting Union (EBU), representing more than 60 European broadcasters, also weighed in on the debate. In its contribution, the EBU states that there is no need for network usage fees. “The current Internet delivery model works well and remains key for securing access to a diverse and plural content offer. […] Interconnection is an essential aspect of Internet connectivity and current arrangements directly enable the Internet’s contribution to innovation and end-users’ ability to reach content, services and applications from all destinations on the Internet.”
A similar point is raised by the European Video-on-Demand (VOD) coalition, which in its submission to the consultation highlights: “Any proposal that introduces a direct payment mechanism based on traffic ‘usage’ would severely hurt content providers in particular. More money paid in network fees would in fact mean less money to invest in European content, which in turn means less European content available and/or lower quality.”
Academics say network fees will change the way the open internet works
Numerous academics already voiced concerns in recent months about the negative consequences of network usage fees. In response to the exploratory consultation, Barbara van Schewick, professor of law at Stanford Law School, warns that “network fees are a threat to the internet in Europe and would set a precedent that could lead to a splintering of the internet across the globe.” Konstantinos Komaitis, non-resident fellow and senior researcher at the Lisbon Council, reminds the European Commission to “recognize the plurality of Internet infrastructure and support it rather than introduce regulation that restricts it. […] In today’s Internet, infrastructure investment does not come only from one actor. […] Any proposal that suggests a forced subsidy from one part of the Internet’s value chain to another through undue regulatory intervention risks distorting competition and change the way the Internet works.”
Startups warn against risk to net neutrality and the entire internet ecosystem
Commenting on the consultation, Allied for Startups cautions that “a network fee will inevitably have unintended negative consequences for the entirety of the internet ecosystem.” “If ISPs are given free rein to charge fees to CAPs, it will incentivise prejudicial traffic management in which those who pay would have access to more or/and better bandwidth.” Network fees “would put smaller actors with fewer resources at a competitive disadvantage. Net neutrality acts as a catalyst for market competition by enabling startups to compete based on the merits of their offerings rather than their ability to pay for preferential treatment.”
Consensus: network fees address a non-existent problem, but will create new ones
Based on these public responses to the consultation, it is fair to say that the majority of stakeholders agree that network fees would be a regulatory intervention that is neither required nor justified. It would, however, lead to negative consequences. End users will suffer from higher prices and less content, the open internet as we know it today will disappear, and both CAPs and small ISPs will have reduced incentives to invest.
Key stakeholders also agree that the very premise of the exploratory consultation is deeply flawed. The Commission’s use of the term “large traffic generator” is a clear example of this misrepresentation of how the internet works, given that it is end users who generate data traffic when they request content. The assumption that there supposedly is a direct relationship between data growth and telcos’ costs also illustrates this point, as there is plenty of evidence that there is no such thing as a direct link between the two.
The European Commission should be transparent in its handling of responses to the exploratory consultation. Given the obvious risks associated with this contentious topic, the Commission should strictly adhere to its own Better Regulation principles going forward. Stakeholders should not only have a chance to speak up, they should also be heard.