Free Riding
The EU can be a tough market for CE companies, with all sorts of regulations, such as those that have forced Apple to change its charging connector, or the power consumption regulations that are plaguing the 8K TV market, but the EU is getting ready to make another proposal that will potentially affect a slew of technology companies that network providers say have been riding for free on their networks. Over the last few years, particularly during the COVD-19 pandemic, network traffic has grown considerably, and while mobile network traffic growth gets much of the press, the growth of all network traffic continues to grow at a rate over 20%/year[1], and while a number of applications that drive network traffic saw peak levels in 2021, at the height of the pandemic, there are more high traffic applications driving current network growth.
The EU has instituted a program that sets connectivity targets that must be reached by carriers by 20230, but EU telco’s, such as Orange (ORAN), Telefonica (TEF), and Deutsche Telekom (DTE.XE) have been writing letters and speaking to officials concerning the cost of building out network capacity to meet those goals. It is not that they believe such goals are unrealistic, but more about the cost, which they believe should be shared by those that generate internet traffic. This sounds like a typical cost shift from corporations to consumers, but that is not what the telcos want, they want the companies whose applications are generating the traffic, not consumers, to share the cost of the expansion.
As the data shows, in 2021, almost 57% of internet traffic was generated by applications relating to six very large technology/CE companies (Google (GOOG), Netflix (NFLX), Meta (FB), Microsoft (MSFT), Apple, Amazon (AMZN)) and while that declined to ~48% last year, most of that decline came from Google and Facebook, while all others, particularly Netflix, saw increases. The EU telecoms are asking that these companies, who pay nothing to ‘piggyback’ their services across carrier hardware, pay a fee to help finance the mandated coverage expansion that the EU has mandated, under the theory that at least a portion of the traffic expansion that will be seen over the next few years, is a result of applications that benefit these companies, while they pay nothing for the use of the network, with carriers and consumers (price increases) baring the cost of the expansion.
We expect that the beginnings of such a proposal will be presented at Mobile World Congress, which begins on February 27th, with a ‘consultation’ between the EU, the US, and the UK, and the collection of opinions from stakeholders that will help to form the legal wording of the proposal, a process that takes about 3 months. Once the bill is formalized, it is reviewed by all EU members and the EU parliament, with the hope that it can be finalized by the end of this year. The bill is expected to offer a potential alternative to the original telecom proposal of passing the full cost of 5G and additional broadband coverage equipment on to those who benefit directly or indirectly. With CE company contingent relying on the concept of net neutrality to quash the bill, the proposal will also have to gather support from those outside of the EU, as global support is essential for the proposal to work, a difficult task at best, but one that will allow carriers to expand broadband coverage, financed by those who benefit, without the public having to bear the cost.
[1] Based on average monthly usage
The EU has instituted a program that sets connectivity targets that must be reached by carriers by 20230, but EU telco’s, such as Orange (ORAN), Telefonica (TEF), and Deutsche Telekom (DTE.XE) have been writing letters and speaking to officials concerning the cost of building out network capacity to meet those goals. It is not that they believe such goals are unrealistic, but more about the cost, which they believe should be shared by those that generate internet traffic. This sounds like a typical cost shift from corporations to consumers, but that is not what the telcos want, they want the companies whose applications are generating the traffic, not consumers, to share the cost of the expansion.
As the data shows, in 2021, almost 57% of internet traffic was generated by applications relating to six very large technology/CE companies (Google (GOOG), Netflix (NFLX), Meta (FB), Microsoft (MSFT), Apple, Amazon (AMZN)) and while that declined to ~48% last year, most of that decline came from Google and Facebook, while all others, particularly Netflix, saw increases. The EU telecoms are asking that these companies, who pay nothing to ‘piggyback’ their services across carrier hardware, pay a fee to help finance the mandated coverage expansion that the EU has mandated, under the theory that at least a portion of the traffic expansion that will be seen over the next few years, is a result of applications that benefit these companies, while they pay nothing for the use of the network, with carriers and consumers (price increases) baring the cost of the expansion.
We expect that the beginnings of such a proposal will be presented at Mobile World Congress, which begins on February 27th, with a ‘consultation’ between the EU, the US, and the UK, and the collection of opinions from stakeholders that will help to form the legal wording of the proposal, a process that takes about 3 months. Once the bill is formalized, it is reviewed by all EU members and the EU parliament, with the hope that it can be finalized by the end of this year. The bill is expected to offer a potential alternative to the original telecom proposal of passing the full cost of 5G and additional broadband coverage equipment on to those who benefit directly or indirectly. With CE company contingent relying on the concept of net neutrality to quash the bill, the proposal will also have to gather support from those outside of the EU, as global support is essential for the proposal to work, a difficult task at best, but one that will allow carriers to expand broadband coverage, financed by those who benefit, without the public having to bear the cost.
[1] Based on average monthly usage
Globalk Internet Traffic - 2021 - 2022 - Source: SCMR LLC, Sandvine
Free-riding Hamster - Source: The Conversation.com
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