Some of Europe’s telecommunication operators seek a major change to how the Internet works – forcing large content, app, and cloud-service providers – such as Amazon, Google, Microsoft, and Netflix – to pay additional fees for Internet infrastructure. It’s poor policy.
Telecommunication companies (telcos) argue that big tech companies consume a disproportionate amount of bandwidth. They cite a recent report by Axon Partners arguing that data growth generated by apps and streaming services make “little or no economic contribution to the development of national telecom networks.”
The European Commission appears sympathetic. On September 9, European Commissioner Thierry Breton said a consultation on the issue will be opened early next year. In recent interviews, Breton has signaled that he wants to introduce legislation, saying “it is necessary to reorganize the fair remuneration of the networks.”
Yet reorganization makes no sense. Data growth represents an opportunity, not a problem, for telcos concludes my recent study. An Internet tax fee would harm rather than promote infrastructure investment, reducing innovation in content and applications. It would compromise the Commission’s vision for digital transformation, which aims by 2030 for 75% of European companies to be using cloud technology, artificial intelligence, and big data.
Additional traffic costs range from approximately zero for fixed line access to low and declining for mobile networks – otherwise increased traffic could not have been accommodated. At the same time, demand for data drives telco revenues, promoting fixed access subscriptions and encouraging consumers to pay more for additional mobile data. Telcos themselves see data growth as good, not bad. “Surging demand for mobile data is the clear driver for future growth in the business,” Spain’s Telefonica said in 2020.
An Internet tax would decrease, not increase, infrastructure investment. If you give money to telcos while the demand and price for access remain unchanged, the money will go to shareholders. After all, the cash doesn’t increase demand or the price of broadband access on which the actual investment case depends.
If you tax content and applications, you will reduce the development, adoption, and use of content and applications, on which the business case for network investment depends. This danger explains why the mobile operators’ association GSMA has long campaigned against such taxes, including a proposed and ultimately rejected Hungarian traffic data tax.
Where the equivalent of an Internet levy was imposed in South Korea, the impact has been negative. Consultants WIK, in a study for the German regulator, reported “a decline in diversity of online content and rising prices for end users for content, as well as lower network infrastructure investments.” Even the “quality for end users is declining,” WIK found.
And then there’s the threat to net neutrality, the key principle ensuring that all data is treated equally and that internet users have equal access to online content and applications. If telcos get their way to charge content and application providers, 34 NGOs spanning 17 countries warned in an open letter that the move “would undermine and conflict with core net neutrality protections in the European Union.”
For all these reasons, European lawmakers rejected claims and demands from the telecoms sector more than a decade ago. So, what, if anything, has changed since then? Well, we have a clearer understanding of the growing role of Internet-based content and applications following the COVID pandemic, and we know digitization has a key part to play in a range of critical areas including the EU’s transition to climate neutrality.
Despite all this evidence, there seems to be momentum in Brussels behind an Internet traffic tax. Commissioner Breton should take a second look. Given that it would undermine commercial network investment and the European Commission’s own digitization goals, as well as conflict with net neutrality, there remain good grounds to reject the idea.
If Europe wants more digitization, it should not tax it.
Brian Williamson is a Partner at Communications Chambers and author of the study “An internet traffic tax would harm Europe’s digital transformation” which recently was launched at the Lisbon Council.