Debate over the division of the costs of network infrastructure

In the late spring, Thierry Breton, the European Commissioner for the Internal Market, proposed changes to the division of digital infrastructure costs. Breton says that the European Commission should issue a policy before the end of the year on the proposal to obligate large enterprises that use digital infrastructure to contribute to the costs of telecommunications networks.

The project is referred to by various names: the Connectivity Infrastructure Act (CIA), the fair share project, the transportation fee, and the network usage fee. In simple terms, it is a new way of sharing the costs of building network infrastructure.

The next concrete step is the European Commission’s public consultation, which will be held towards the end of the year. The consultation will present rough details on the implementation.

Deutsche Telekom from Germany, Orange from France, Telefónica from Spain, and Vodafone from the UK have been the most vocal supporters of this initiative in the EU. Breton is a former CEO of France Telecom, so the telecommunications sector is very much his area of expertise.

The idea of reallocating costs is by no means new – it first saw the light of day in the mid-90s and reappeared around ten years ago. The debate occasionally tapered off, but now Breton has taken on the initiative.

According to Breton, it would be fair if the parties that benefit from the digital transition also contributed to the costs of the infrastructure that enables it. Bandwidth-intensive US platform services, such as Meta, Google’s YouTube, Netflix and Amazon Prime, are seen to benefit from the expansion of fixed and mobile networks in Europe without contributing to the development and construction costs of the infrastructure. For example, the construction of communications networks in Finland is largely market-oriented, responding to demand. Telecommunications companies invest approximately half a billion euros in communication networks every year. About half of this sum is spent on fixed networks and the other half on mobile networks.

The metaverse and global situation are grounds for the project

The reason for the project is to prepare for the services that the metaverse will introduce. The metaverse collects and exploits enormous amounts of data to provide services. New virtual worlds will impose even more challenging requirements on digital infrastructure – increasingly efficient telecommunications connections are needed.

A further justification for developing critical infrastructure is the pressure of crises. Additional investments are needed in many EU countries to boost the capacity of telecommunications networks in the post-pandemic era of remote work and education. Likewise, many EU countries only began paying serious consideration to cybersecurity and the investments it warrants in recent years. This pressure has only increased since Russia launched its war of aggression. Moreover, the energy crisis is impacting the willingness to invest. A commitment to reducing emissions and fostering the green transition requires brisk progress in the development of digitalisation. In addition, the circular economy cannot become a reality without a strong digital infrastructure to support it.

For all these reasons, Breton has spurred the European Commission to revive its earlier proposal and drive it forward in the EU.

Arguments for and against

In July, Finland joined forces with Denmark, Estonia, Germany, Ireland, Sweden and the Netherlands to write to the European Commission demanding transparency and the regular impact assessments while preparing the project. The current Commission has 18 months left of its term. The Commission has until next April to issue its final proposals for consideration during this parliamentary period. If this initiative is to be considered before the end of this Commission’s term, it must be prepared quickly.

If the proposal comes to fruition, it will incentivise new network investments, which would benefit not only telecommunications operators but also other companies providing digital services, as well as the end-users of services.

The position statements refer to six service providers that will primarily be targeted for contributions: Apple, Amazon, Microsoft, Google, Meta and Netflix. They all argue that they have made their own investments in the necessary digital infrastructure by building data centres, among other things. At the same time, they want to expand the target group by highlighting the capacity consumed by TikTok, a Chinese company, and the gaming sector.

The European Commission has previously held steadfast to the principle that all network traffic is equally important, and operators cannot prioritise certain types of traffic to the detriment of others. As the project proceeds, this principle will need to be reassessed. Telecom network capacity is not yet under threat, although usage is expected to climb dramatically. The amount of data transferred by Finland’s mobile networks has increased six-fold since 2015. Finns use more mobile data than any other nation. This is largely because most mobile broadband subscriptions sold in Finland provide unlimited data transfers.

The project to reform the division of network infrastructure costs faces many of the same challenges as the creation of a digital tax. The EU appears to have the will and the justification for this, but the practical implementation is likely to be fraught with challenges.

Elina Ussa, Managing Director, FiCom