Net Neutrality

Will Europe charge US Internet operators for fair remuneration of EU telecom networks?

Europe is preparing for a new revolution in Internet legislation. A few weeks after the political agreements that rewrote the rules of the game with online platforms, namely the Digital Service Act (“DSA”) and the Digital Market Act (“DMA”), the European commissioners Vestager and Breton have announced that their staff is already working on a new project with which some large operators (in particular Google, Netflix and Facebook) could be forced to contribute to European investments in new fiber and 5G networks. The announcement follows the requests made by some large European telcos via their ETNO association who have publicly asked for a European initiative to be able to recover the costs of adapting their networks in the face of the growing traffic, especially video, from some large Internet operators.

The Commission’s initiative, the details of which are not yet known, appears as a continuation of the Digital Market Act, with which Brussels set ex-ante competition rules to contain economic dominance and potential abuses by global Internet operators, called “gatekeepers” for their ability to influence the entire Internet ecosystem. With the new regulation, some of these operators would be asked to pay to contribute to the development of the new European very high-speed networks. How they will do it is not yet known exactly, although a study commissioned by ETNO lists, among the various possibilities, a direct contribution – to European telcos – proportional to the amount of Internet traffic transported by them to users on behalf of each specific Internet operator. But there may be other options, such as European taxation with redistribution of proceeds as state aid.

American Internet operators could relaunch by proposing to invest these sums directly in European networks, creating new companies or taking over existing ones. Google has already started a similar activity in the United States called Google Fiber and, at that point, it could decide that the right time has come to enter Europe as a network operator, given that the fiber networks business is considered interesting by the overwhelming number of American and international infrastructure funds.

Whatever the development of the current initiative, it is likely that it will mark a strong friction between the European Union and the United States. Brussels’ claim that American operators should contribute to the development of European networks will not be taken well in Washington. Relations between the two sides of the Atlantic have already been severely tested by the approval of the aforementioned DMA and DSA, but it has not come to a break because these regulations have also been sponsored by American operators eager to find more competition in Europe and, in the future, also in America. The new initiative, on the other hand, risks being strongly desired only by European telcos and therefore being seen as an exclusively protectionist measure.

It should not be forgotten that such a debate, about the possible pricing of Internet traffic transported on telecom networks, had already taken place ten years ago at the ITU headquarters, also in that case at the urging of the ETNO association. However, the request was rejected on the basis of the joint position of the United States and the European Union, which at the time found themselves allies (and despite the interest from China, Iran and Arab countries).

The debate then moved to Brussels where the European Union decided, at the end of a long debate, that the Internet network should remain neutral and that therefore the telcos could not impose any tax on the traffic of Internet operators (thus the EU regulation 2015/2120). This position was favored by the general belief that a neutral Internet network, that is, not conditioned by the tariff powers of the telcos, was essential to foster innovation and democracy on the net.

Now the debate will restart, but the context has changed: on the one hand, the European telecom sector is suffering from the crisis of falling margins and growing investments, all of which, however, having to face an explosion in Internet traffic, due to the growth of video entertainment and remote mode activities (smart working, smart education, etc.); on the other hand, the Internet world has lost its virginal reputation, given that large operators are no longer seen as champions of innovation and democracy but, on the contrary, as source of competitive problems and disinformation.

Hence the reopening of the debate in Brussels, with a possible Commission proposal that could be presented by the end of the year.

Categories: Net Neutrality

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