“The idea that the European Parliament voted in favour of network fees [recently] is false,” said Barbara van Schewick, Stanford Professor of Law, at MediaNama’s recent event unpacking international trends in network usage fees.
Van Schewick was responding to a question by MediaNama’s Editor Nikhil Pahwa on how public responses discussing network fees submitted to India’s telecom regulator suggested that the European Parliament voted in favour of them. The Indian regulator had sought public comments for a new system to regulate Over-the-Top communication (OTT) services, as well as protocols for selectively banning them. As Pahwa pointed out on Twitter, multiple submissions by telecom companies recommended that popular OTTs pay network usage fees to them, amounting to a violation of net neutrality.
It’s 2023 and I’m not sure if anyone cares for #netneutrality in India anymore, but Jio, Vi and Airtel are coming for it.
Don’t take my word for it. Here are excerpts from their submissions to @TRAI (uploaded last night) :
— Nikhil Pahwa (@nixxin) September 5, 2023
“Where we’re at in Europe right now, is that we’ve recently had a consultation on this topic [network usage fees] initiated by the European Commission, and we’re currently awaiting the responses from this consultation here in Europe,” clarified Carl Gahnberg, Director of Policy Development and Research at the Internet Society. “It’s been a discussion in policy circles in Europe and in Brussels…There hasn’t been an initiation of a legislative process or anything similar.”
“What you describe [from the submissions] is a huge misinformation campaign, because first, the European Parliament did not adopt any binding recommendation,” van Schewick added. “What we are talking about is one paragraph in a 25-page report on a totally different topic. So, this was the 2022 annual report on competition policy by the [European] Parliament’s Committee on Economic and Monetary Affairs. So, this is not a law. This is not a regulation. It’s just sort of a statement about what happened in competition policy. At the last minute, allies of the large telecom companies put in this paragraph that could be read to endorse network fees. There was a huge fight.”
MediaNama hosted this discussion with support from ADIF, Google, Meta and Netflix.
Among other things, the report called for the “establishment of a policy framework where larger traffic generators contribute fairly to the adequate funding of telecom networks”.
“In the end, the Parliament affirmatively voted to reject network fees [proposed in the report] and here’s why,” van Schewick explained. “So, they did not pass this paragraph as it was, they added a couple of words that totally changed the meaning. So, they added [paraphrasing] ‘we think companies should participate and there should be sort of a fair distribution of the costs. But, without violating net neutrality’. That’s really the key language in this proposal. Both BEREC [Body of European Regulators for Electronic Communications], the top telecom regulator who is the expert on Europe’s net neutrality law, and lots of other stakeholders, including me, have explained how these network fees would violate Europe’s net neutrality law. I know from talking to the people who negotiated this amendment that they knew that network fees violate net neutrality and that they deliberately added this language to the paragraph in order to make clear that the network usage fees that the telcos want to have, should not be pursued. Unfortunately, this kind of nuance has been lost on the press. For example, even some of the press reports that came out right after the vote made it seem as if the Parliament had endorsed network fees, but it did not. In essence, it intentionally voted to reject network fees.”
Network usage fees have been an unpopular policy plank in the EU for a while: “For years, the large telecom companies have tried to get paid twice from their users,” van Schewick recalled. “First from the users that pay them to get access to the Internet, and then a second time from the sites and apps that the telecom’s users want to visit. Part of what’s so ironic for everyone who has worked on this for a long time is that this proposal has been rejected over and over in the past 15 years. And this time around is no different.”
Network usage fees were “first discussed in 2012 when the largest European telecom companies represented by their trade association, ETNO [the European Telecommunications Network Operators’ Association], wanted the ITU, the International Telecommunication Union, to adopt this proposal,” van Schewick explained. “At the time, everybody was looking into it. The OECD rejected it, most of the member states in the European Union, the United States rejected it. In the end, it was rejected by the ITU [International Telecommunication Union]. It didn’t become law. And since then, every couple of years, the phone and cable companies have [still] come back and said, hey, we should really get paid by the content providers that our users want to visit.”
What kicked off the current interest in network usage fees in the EU?: Representing the EU’s largest telecom companies like Deutsche Telekom, Telefonica, and Orange, ETNO wrote a letter and then a report batting for network usage fees.
“Commissioner [Thierry] Breton, who is the Commissioner in charge of regulating telecom services [in the EU], came out really quickly and aggressively, siding with them. It might be worth noting in this context that Commissioner Breton was the CEO of Orange, the former state [telecom] monopolist in France, before. Since he originally endorsed this proposal in May 2022, everyone else in Europe has come out against this proposal. So, it started with Europe’s top telecom regulator, BEREC, who in the fall of 2022, after investigating this issue properly with a whole bunch of workshops, with academics, civil society representatives and industry participants, said [paraphrasing] ‘we looked into this again and nothing has changed since 2012. There is no market failure that needs solving. There is no problem that needs solving. And to the contrary, adopting this proposal would be harmful for the Internet ecosystem, [and] would harm innovation and competition’. Since then, basically everyone has come out against the proposal. 18 of the 27 member states in the European Union are opposed to that proposal. Lots of companies and stakeholders—basically everyone other than the telcos and the companies and the academics that are paid by them—are against this proposal.”
“The rationale in the European context that the telcos are promoting is that they’re arguing that there is an investment gap to meet the targets of deploying high-speed connectivity infrastructure by 2030,” Gahnberg summarised later on in the discussion. “The argument from their side is that we’re not able to meet these targets, in part because of a high growth of traffic and increasing costs of their networks, and therefore a mechanism like this would be warranted.”
“It’s definitely a majority [of EU countries] at this point that are highly skeptical of this [network usage fees proposal], if not outright rejecting this idea,” Gahnberg added. “[For example] The Italian Undersecretary [for innovation] sent a letter to Commissioner Breton expressing Italy’s concerns about this. It’s a very well-articulated letter that kind of hits all the points that you’ve heard today about why this is such a bad idea and why the very premise of this is flawed.”
The EU’s current network usage fees moment is inspired by South Korea’s model: Gahnberg observed that the EU’s net neutrality moment was also inspired by network usage fees models being implemented in South Korea. “The rules that are enforced in South Korea, and what is being discussed in Europe, they’re quite similar, but they’re also somewhat different,” Gahnberg explained. “The similarity basically comes down to this idea of regulating Internet traffic according to a principle of [the] sender pays.”
“But, the rules that are enforced in South Korea, they’re also slightly different, because right now the obligations are targeted towards Internet Service Providers, while what’s being proposed in Europe is that the rules would target content providers,” Gahnberg continued. “So, they’re slightly different in terms of their target, but the effects are more or less similar.”
“They’re also related because what happened in South Korea is that they started with the sender pay rules targeting Internet Service Providers, there were some adverse effects from this in terms of how costs were effectively imposed on domestic providers versus foreign providers. So, as an attempt to level this playing field, there’s currently a legislative proposal in South Korea around network usage fees, which goes beyond the regulating interconnections, and it’s more of a classical kind of termination fee that you would have in the telephone system, where the content provider would need to pay the access network for the access network to deliver its data. So, that’s kind of where the inspiration for this discussion in Europe came from, where they saw the developments in South Korea, they saw the legislative discussions around network usage fees, and saw that that was something that could also be discussed in Europe.” — Carl Gahnberg
The network usage fees proposal raises specific competition and net neutrality concerns for content providers:
- Exploitation of termination monopoly by access providers: “What BEREC…talked about in relation to this termination monopoly and these rules that are being proposed, is basically that it would reinforce the power of the termination monopoly,” Gahnberg explained. “Why? Basically, because you [a content provider] would become required to negotiate with the access provider for them to deliver your traffic. Because they have this termination monopoly, they would be able to exploit it to charge very high prices to the third party. So, this is why BEREC says that…rather than net neutrality, [which is] trying to sort of limit the risk of someone exploiting this termination monopoly, what these rules would do is basically give them a carte blanche to exploit it, right? So, it works in direct conflict with the idea of net neutrality.”
- Creates competition concerns even within Internet Service Providers: “What they [BEREC] also describe, and this gets to the competition concerns between different sizes of ISPs, is that the termination monopoly, basically it’s a function of your number of users,” Gahnberg added. “So, if you have a lot of users, then you have a very strong termination monopoly power. You have a strong bargaining power that you can exploit. If you’re a small network, you don’t really have this power. So, what this means is that, while a large ISP might be able to negotiate these highest fees with a content provider, a small ISP might not be able to do that, because of the transaction costs involved. The content provider might not find it beneficial to sit down and write a contract with someone who has a user base of 10,000 people versus 10 million. So, both in terms of the transaction costs of actually contracting, but also in terms of the fees that could be charged, that could fall very differently between the sizes of ISPs.”
- This proposal could give large ISPs two kinds of added benefits: “It could also have this very perverse effect where a small ISP that is not able to negotiate this contract with a content provider, they might become dependent on the large ISP to actually retrieve that traffic,” Gahnberg warned. “That means that the large ISP can double dip here. They can charge both the content provider for receiving that traffic, and they can also charge the small ISP for sending that traffic forward to the small ISP. So, this, of course, distorts the competition in the ISP market as well. So, the only real beneficiaries of these rules are the large telecom operators.”
- Reading List: International Trends In Network Usage Fees
- European Union’s Proposal To Get Big Tech To Pay Interconnection Fee Threatens Net Neutrality
- Net Neutrality Rules Set To Be Reintroduced In The US
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