Taxing Tech for Better Internet?

Some thoughts on the EU's planned Fair Share rules (taxing tech for data infrastructure):

The proposal by the European Union (EU) to require platforms to contribute to the development of digital infrastructure, although seemingly reasonable and aimed at assisting telecom operators, would actually lead to more problems than solutions. The reaction to Commissioner Breton's proposal last May was mixed, with some voices in the telecom industry arguing that content providers and streaming platforms do not pay their fair share for utilizing the networks that transmit their content. They highlight the strain on infrastructure and resources caused by the high traffic generated by streaming services.

However, this argument is flawed. Implementing fair share rules would ultimately result in higher costs for consumers, as companies like Netflix, Disney, Sky – NowTV, and the Italian Mediaset Play would be required to pay for broadband networks.

The issue of fair share contributions has shed light on a significant problem in the European connectivity market: Telecom providers are expected to expand Europe's data highways but lack the necessary capital to do so quickly. The shortage of funds puts European economies at a competitive disadvantage, necessitating action. Unfortunately, Commissioner Breton and his allies in some legacy telecom companies have identified a growing group of digital content providers as the culprits.

Enforcing fair share rules would lead to higher consumer costs, as companies like Netflix, Disney, Sky – NowTV, and the Italian Mediaset Play would be obligated to pay for broadband networks.

The argument that content providers evade paying their fair share for network use does not withstand scrutiny. This is because internet service providers, who often own the infrastructure in many member states, are prohibited from blocking services or traffic except for security reasons, thanks to Regulation 2015/2120, also known as the Open Internet Regulation.

Applying the fair share concept to streaming services would contradict this provision, as it would require certain providers to pay for network use, treating them differently from others.

Telecom providers already charge consumers for network access and data, which serves as compensation for using their infrastructure. Instead of imposing unjust fees on content providers, the EU could collaborate with member states to reduce the cost of spectrum licenses. These licenses are fees that telecom companies pay to access the radio frequency spectrum necessary for wireless signal transmission.

In many member states, these fees can be prohibitively expensive. Some may still recall Germany auctioning off the 3G/UMTS spectrum for a total of €50 billion in 2000, leaving telco companies with less capital to build the required data infrastructure. Lowering or even eliminating these fees would provide telecom providers with more funds, enabling them to invest in infrastructure and enhance their services.

Currently, spectrum is typically only allocated for a period of two decades. Establishing proper ownership and functioning secondary markets for spectrum across the entire EU would bring more dynamism to our connectivity market. Despite the rhetoric suggesting that the end of intra-EU roaming brought about a single market for connectivity, Europe is still far from achieving a harmonized telco market. Creating a competitive European connectivity and telco market could yield higher returns than Breton's attempt to impose taxes on predominantly US-based content platforms. Ultimately, this would benefit consumers by increasing competition, lowering prices, and improving the quality of telecom services.

The battle over fair share contributions has revealed a significant problem in the European connectivity market: Telecom providers are expected to expand Europe's data highways but lack the capital to do so quickly.

While the EU's proposal to make platforms contribute to the development of digital infrastructure may appear reasonable and beneficial for telco operators, it would create more problems than it solves. Some member states' pursuit of revenue has severely hindered the EU's connectivity and available capital for significant network infrastructure investments. Consumers still bear the burden of spectrum auctions through excessively high prices for mobile phone plans in countries like Germany and the United Kingdom. Conversely, member states in the Baltics charge telecom providers between €5 and €35 per citizen, allowing them to accumulate the necessary funds for infrastructure expansion.

Addressing the financial difficulties faced by the telecom industry would be better achieved by reducing the cost of spectrum licenses instead of imposing unfair fees on content providers. Adopting a new approach to spectrum management would benefit consumers by fostering competition, reducing prices, and improving the quality of telecom services.