What is the Fair Share proposal?
On the Internet, exploiting both sides of the market is a standard practice. For instance, some streaming platforms charge their users -via subscription fees- and advertisers -by setting a price per add-. However, to the present day, this is not the case of telecom operators.
The telco sector’s ability to evolve to a two-sided market is limited to the bargaining power of Large Traffic Generators. Telecom operators are stuck in one-sided market model, getting payments for the use of the networks only from end customers and not from content providers. This affects the sustainability of the networks and reduces telcos’ investment capacity. At the same time, since networks are the backbone of Europe’s digital transformation, this also delays the consecution of the EU’s Digital Decade goals.
Fair Share aims to create an obligation for LGTs to negotiate and reach an agreement for the service of delivery of LTGs traffic through national networks to end users.
What is the problem behind Fair Share?
Large telecoms operating in Europe and industry associations are calling for the Large Traffic Generators (LTGs) to make their contributions due to the sector’s inability to maintain the pace of the investment. In short, telecom operators are facing a paradox. While data traffic is growing rapidly (at a compound annual rate CAGR of 35% in 2011-2022 and above 50% for mobile data), operators’ revenues are declining (at a -3% CAGR).
This traffic growth has been mainly driven by a few digital players. According to a study by Axon Partners Group, in 2021 alone, 57% of global traffic came from just six digital platforms: Alphabet, Apple, Amazon, Meta, Microsoft and Netflix. Thus, to ensure the sustainability of the network and face the increasing traffic growth, it seems appropriate that Large Traffic Generators pay for the traffic conveyance service provided by telecom operators.
However, the bargaining power asymmetries between these companies and telco operators are preventing the establishment of fair conditions to negotiate. This is why the telecommunications sector is asking the European Union to establish a regulatory mechanism that imposes an obligation on LGTs to sit down and reach an agreement.
The root of bargaining power asymmetries: the evolution of the internet architecture
The construction of the Internet was initially based on symmetrical data traffic exchange among equal peers. Internet Service Providers at the same level exchanged data by applying compensation mechanisms. And if they were not at the same level, the lower-level networks paid to the upper tier-level transit providers for the transport of their data, according to the amount of traffic exchanged. Nonetheless, this is not the case anymore.
The appearance and growth of digital and streaming platforms led to increased need of capacity, flattening Internet topology through the introduction of Content Delivery Networks (CDNs). These platforms became a new category that was not envisage in the Internet architecture. Large digital companies ceased to be Internet users and became special operators without having access network or national backbone, which allowed them to gain unrestricted market power.
The dominant position of these platforms created power asymmetries that increase the vulnerability of other digital players -such as telecom operators- to possible unilateral decisions in the negotiation of contractual terms.
The European Union’s position
The debate between the companies is not reaching a satisfactory solution, which has led the European Union to act. The European Parliament has shown itself to be in favour of the operators’ position, which it has argued on the basis of data and the current situation in the sector, where around 60% of data traffic on the networks is already concentrated in six large technology companies, with no investment in infrastructure.
The so-called Competition Policy Report also refers to fair share. It contains amendment 12, which states that the economic sustainability of telecommunications networks is essential to the EU’s objectives. The EU has proposed that, by 2030, there should be high-performance connectivity for European citizens, but without compromising competition rules.
The report calls on the European Commission to mitigate power asymmetries in decision-making. At the same time, it calls for a policy framework in which large traffic generators have to contribute to the fair financing of telecommunications networks, but without affecting net neutrality.
Such an approach would close the infrastructure investment gap of 174 billion euros, as identified by the European Commission.
Fair share thus becomes a tool to avoid serious imbalances in the telecommunications sector. As technology companies increase traffic and therefore the use of networks, it seems only fair that they contribute to the maintenance of the infrastructure. The aim is that users should benefit and enjoy higher quality services.
