Europe to consult on making Big Tech pay for the networks it floods

The European Union yesterday decided it's time to start "laying the ground for the transformation of the connectivity sector" in the region with three initiatives – one of which codifies the idea that Big Tech should pay for the networks that carry its traffic. Carriers around the world point out that they are low-margin …

[alain williams]

All should pay their costs to the backbones

The trouble is that consumer ISPs want to offer low priced "all you can eat" packages and then find that consumers take them at their word by viewing huge numbers of videos, etc.

What is needed is a dose of reality: use lots of bytes, expect to pay more.

Big Tech should pay what it costs to get its bytes to the backbone and consumers pay for what it costs to download them from the backbone.

When I talk about "backbone" I mean more than the local Internet exchange, this should include the cost of bytes between these exchange points.

Yes: prices will go up for heavy consumers, that is only fair. Lighter users will pay less.

[doublelayer]

Re: All should pay their costs to the backbones

"When I talk about "backbone" I mean more than the local Internet exchange, this should include the cost of bytes between these exchange points."

That's how it works already. I pay my ISP, who uses some of that money to pay for their interlinks with other ISPs, who use it for their links. Sometimes, they peer so that they don't have to pay one another for traffic, usually when that would have been a relatively balanced exchange anyway. If the networks my ISP is linking with start charging more, whether it's because they want to build some expensive stuff or they've realized what wonderful things money can buy you, my ISP has the choice to either pass those prices on to me or to find another way to route the traffic. That's the point of having an ISP manage their connection. Since they are already paying the network operators, it doesn't make sense to add on other charges, and trying to do so would inevitably lead to confusion and to price gouging (if my ISP can bill me for some network they used and present this as a get out of complaints card, then they no longer have any incentive to be efficient with how my traffic is routed).

Many connections are billed by usage, either by bytes transferred or by flow consumed, and this is a perfectly reasonable business model. I've had such contracts before and I have a lot of contracts like it; my electricity and water usage, for instance. Most industrial connections have billing that takes one or the other of these into account when deciding on the price, and every cloud provider certainly does and often with a very healthy multiplier on it. However, it should be the choice of the ISP whether they will give me such a contract or if they intend to offer an unlimited package, and if they find that offering everything for less than it costs to deliver the everything I use, then it is a problem they'll have to fix themselves. It should not be our responsibility or that of other users if an ISP chose an unprofitable price. It certainly shouldn't be the responsibility of companies who are almost certainly paying more as their usage goes up to the networks that the ISP has chosen voluntarily to link with.

[farnz]

Re: All should pay their costs to the backbones

That's today's system. Big Tech will run their own connections, or pay to have them provided, all the way to interchange points. Some of those are public interchanges like AMS-IX, but they'll also pay to run connections to provider-specific peering points (so that their traffic stays on their network for as long as possible). They don't want their traffic on congested networks, and will pay to sort this out.

Additionally, Big Tech will pay for "appliances" for bigger ISPs to place in their network, like the Netflix OpenConnect Appliance. These VPN back to the main Big Tech networks, and act to reduce traffic along the VPN link by caching just the way Big Tech does to stop everything hitting one server in one location.

The fundamental issue here is that, in a competitive market, people aren't willing to pay carriers a price carriers want. If carriers increase their prices, two things happen:

1. Some users stop paying, and do without not just the carrier services, but also Big Tech.

2. Other entities (e.g. Hyperoptic in London) build competing networks that charge less, and thus induce users to pay them instead.

The advantage of charging Big Tech from the carrier point of view is that it isolates them from those two market effects.

[Dinanziame]

Re: All should pay their costs to the backbones

The fact of the matter is that ISPs cannot compete with each other on anything else than price, and it's easy to change providers, so their margins are thin. Big Tech providers are not nearly as interchangeable so they have larger margins and make a lot more money. This is similar to how truck drivers are paid very little compared to the companies who pay them.

[elsergiovolador]

Re: All should pay their costs to the backbones

This is similar to how truck drivers are paid very little compared to the companies who pay them.

Not really. Truck drivers are paid very little, because shareholders take precedence. Now that IR35 changes have been introduced truck drivers lost their ability to go their own way - very much last bargaining power they had. So now they can make even less money.

[Yes Me]

Re: All should pay their costs to the backbones

You're saying exactly what Dinanziame said, but in different words.

This whole argument comes round every few years, but the EU needs to wake up to the fact that (as long as they endorse capitalism as the economic system), it won't change. This just seems like the ancient, long-dead PTT monopolies attempting self-resurrection in the guise of "broadband providers". It won't work, because there'll always be a cheaper ISP.

[Missing Semicolon]

Re: All should pay their costs to the backbones

In other words, the ISP's business model is no longer sustainable. That's not the fault of the content and service providers that have made the internet more useful. If the ISP's pricing model relies on the user not using their product, then it's broken.

You don't have the right to a business model. If the world changes, you change, or go out of business.

[doublelayer]

Re: All should pay their costs to the backbones

This is how it should be. It doesn't matter that they're low-margin, especially when they don't have much competition anyway and take advantage of that to have a much higher margin on some customers. You charge what you can to get customers to buy your service and to be able to profit from providing it. The tech companies have higher margins because people want to use that specific company more than they want to use one particular ISP.

Truck drivers may be paid badly for a number of reasons, and some of those reasons are things we should change involving labor regulations or anticompetitive actions. However, we shouldn't assume that, when those problems have been removed, that package delivery will start to have the same margin as manufacture of the thing in the package. It's a lot harder to design and manufacture a product that I want than for someone to drive the box to me, and as long as that remains the case, the person delivering it will make a smaller margin than the person creating it.

[M.V. Lipvig]

Re: All should pay their costs to the backbones

Bull. If I pay for a connection with a set up and down rate, I expect to be able to use my maximum data rate 24x7 if I so desire. If a carrier only wants to provide a set amount of data, that's not a plan I'm signing up for unless they're supplying more data per month than I can use.

[sabroni]

Fuck off

Build those networks but don't allow those "tech giants" to use it and see how many customers you get.

This is like Ford demanding money from Esso. "Your cars are benefiting off our Public Forecourt infrastructure! That cost us loads!!!"

Why do you legitimise this bollocks by pretending the telecoms sector isn't already paid by it's customer specifically to deliver the content of these "Tech giants"? Thought you were supposed to indicate when it's an advert not an article....

[_olli]

Re: Fuck off

Those global networks have by the way so many much more useful uses besides recreational uses such as streaming movies and showing endless video advertisements o' Netflix & Google.

Finetuning your metafora, current situation is more like Ford demanding that "Esso" should provide unlimited free gasoline to it's cars, because Ford already built factories and ships cars over ocean (or whatever they'd claim).

[Dinanziame]

Re: Fuck off

This is Esso having promised unlimited gas for a fixed price to its customers, and requesting Ford to pay for it because the cars consume too much.

[Yes Me]

Re: Fuck off

False analogy. The marginal cost of extra bits/second is effectively zero, up to the point where you saturate the network, when it becomes infinity. This is quite different from any other commodity, and is the reason that flat rate charging is the norm for most consumer ISPs. The traditional telcos always hated that fact of life, which is why there are no traditional telcos now. (But they still seem to have traditional lobbyists in Brussels.)

[NATTtrash]

Re: Fuck off

Nice discussion, but missing one point (IMHO); all arguments are still rooted in the assumption that the access of a consumer is all just for "fun and games". Meanwhile, on the other side of the coin, "others" are changing their (business)models in such a way that you, as a consumer, can't live without access. Just think about it: (how long) can you still do your bank stuff analogue (do they still have a branch?), get your tickets and boarding cards for air travel, submit your taxes, book your doctors appointment, or do that nice digital payment for your life essentials with your phone, watch, butt plug, anything electronic but those "extremely risky", deemed "granddad appliances" called cash. That means that wiggling the additional costs towards the consumer one way or the other has already started. And can't be avoided. But hey, it was all about "choice", right?

[localzuk]

Low margin?

I'm not sure I agree with the low margin part...

AT&T made $69bn profit in 2022, on $121bn revenue, a 57% margin.

Vodafone made €5.7bn on €45.6bn, a 12.5% margin

Verizon $21bn on $136.8bn, 15% margin

Deutsche Telecom €9.1bn on €114bn, 8% margin

I could go on.

To me? Those aren't particularly low margins. My understanding is 5% is a low margin. 10% is a healthy margin.

[elsergiovolador]

Re: Low margin?

One man's low margin is another man's treasure or so it goes...

[farnz]

Re: Low margin?

When this last came up, I went looking at accounts - I've kept the results I found, but not the raw data.

The worst performing telecom I could find had an ARPU of around €280 per year - so the "average" user paid them a bit over €23/month.Their profits were around €25 per user per year - not huge, but not awful - somewhere around the 8% you found for Deutsche Telecom. When I looked over a 5 year basis, their annual profits per user varied between €23 and €27. So fairly consistent over time.

The best performing big tech I could find had a profit of €10 per user per year, on ARPU of €15 per year. By the percentage margin, this is incredible compared to the worst performing telecom - over 60%. When I did the 5 year check, though, their ARPU varied from €6 to €21 per year, while €5 per user cost of doing business was the lowest they'd managed, so profits swung from 10% margin (€6 ARPU, about €0.40 in profit) to 70% margin (€21 ARPU, about €14 of profit)

You'll also note that, in addition to the bigger variation in margin over time, the big tech company consistently had an ARPU lower than the telecom's per-user profit. On a pan-European basis, the big tech company made more than the telecom, due to being present in all EU member states, not just a subset, but the telecom made more money per user than the big tech firm. It's just that the big tech firm was able to book much more of a smaller pie as profit, because its expenses were much lower.

This all leads me to the belief that the telecoms are merely annoyed that they can't claim more of the total revenue, because no-one's willing to pay them more for the service they provide, and that they're whaling on "big tech" because people see that big tech makes large global profits, and don't look deeper than that.

[A Non e-mouse]

My sympathy for the big content companies wanes as their profits soar.

[Pascal Monett]

"strangely aimed only at American-born firms"

American-born firms who, strangely, pay almost no taxes anywhere. And they may have been born in the USA but, strangely, when the taxman cometh, the are very much foreigners.

Microsoft has apparently legally set its tax base in offshore havens. Apple is also hot on that market. Amazon does wonders to ensure that it can, perfectly legally, avoid the majority of taxes it should pay. I'm sure that Oracle and all the others are in line as well. After all, it's their "duty to their shareholders", isn't it ?

I'm obviously not saying that these companies should hand over 50% of their revenue, but they definitely should not whine about having to pay for what they use.

Oh, and it should be a worldwide rule that, if your company rakes in over a billion dollars a year, you are forbidden from getting subsidies anywhere. You've got the money, you don't need to deprive citizens of the benefits of their tax money.

[Grinning Bandicoot]

Retirement funding

The question is not whether the monies go to Scrooge McDuck's vault to be hidden away like some 17th century mercantile prince but is paid to institutionals such as retirement and insurance funds. If these monies go to this type of institution, then the real question is what, where and when of the insurance/retirements do with these "bonus" bucks. One of my retirements is big enough that their 'suggestions' is as an admiral's suggestion to a non rate. However, the longer and more convoluted the Covid flag is waved the more I am believing that the virus as a means of insuring the solvency of said funds for use by the Boskonians.

[elsergiovolador]

Sense

This makes sense - when you use roads you pay taxes to get them built and maintained.

But big corporations have chronic aversion to taxes and they can buy anyone trying to "cure" them.

[doublelayer]

Re: Sense

"This makes sense - when you use roads you pay taxes to get them built and maintained."

Yes, you do, but those roads are public property and open for public use. If I as a company build some roads of my own and allow you to pay to use them, I don't get to demand taxes to maintain my private roads. It's up to me to find the money to maintain the thing I built with the intention of making a profit, and if I find that my Extra Motorway Corporation isn't managing to turn a profit, then it's up to me to fix that. That could involve changing the prices, finding more people who might want to use my roads, selling the road to the government and making it public, or shutting down and finding a business that people are interested in. When ISPs make a profit, as most of them do, they don't give it to us. When they make a loss, or just not as much profit as they want, it's not up to us to supply it.

[farnz]

Re: Sense

But to stretch your analogy further, this is Midland Expressway Limited complaining that Mercedes-Benz makes more money from people who drive on the M6 Toll than they do, and that the right fix for this is for MB to pay an additional fee to Midland Expressway whenever an MB car or truck uses the M6 Toll.

If it were going into taxes, it might be different - but it's not - it's one corporation saying that another corporation should pay for access to their mutual customers.

[M.V. Lipvig]

Re: Sense

"If it were going into taxes, it might be different - but it's not - it's one corporation saying that another corporation should pay for access to their mutual customers."

While the telecom conveniently forgets how much those large companies are already paying for that access. 100GB circuits ain't cheap, and I'm saying this as one who works for one of those telecoms. Course, the gear isn't cheap either, fiber cuts are expensive, and you wouldn't believe how chinzy some customers are. We have a few customers that will open a reason for outage ticket if they see a single second of downtime. If they have X number of minutes of downtime per month, they get a 2 week credit on their service. That's only about 4 and a half minutes of cumulative downtime in a 30 day period.

[The Basis of everything is...]

Customer pays twice

If you send data to anyone, you pay your ISP.

If you send data from any of the cloud providers, who besides being Big Tech themselves also provide a lot of the infra to the rest of Big Tech, you also have to pay egress charges for every byte sent, whether that is data to yourself or directly to your customers/users.

So you're effectively paying both sides already.

Now if the argument is certain organisations are not paying enough because right now in many there is a choice of provider to use (but certainly not all - have a look at regional data egress pricing to see the effect of competition) should we really be saying that telcos and ISPs should be allowed to pick on organisations to pay more? Who do you think is ultimately going to foot the bill? Hint: See above.

[plrndl]

Death of the Dinosaurs

This is a suicide note for the Big Carriers.

If they succeed in getting Big Tech to pay for the bandwidth their customers use, Big Tech will simply build their own networks with cheaper, faster technology and put the carriers out of business. They will then buy up the assets for pennies on the £/$/€ and laugh all the way to the bank.

[Roland6]

Re: Death of the Dinosaurs

They already have…

” Big Tech usually pushes back on such arguments with three points: they already spend plenty on submarine cables”

So the precedent has been set.

I also remember reading that some big tech co’s have already been looking at having their own terrestrial fibre network…

Given the cost of upgrading to 5G, I expect the carriers to size their network to fit some “reasonable” usage model and if you (user and/or content provider) want more then dip into your pocket. Which is probably happening today behind the Netflix and other bundled deals.

[Down not across]

Switching off legacy technologies

The EC has also replaced its 2014 Broadband Cost Reduction Directive with a "Gigabit Infrastructure Act" aimed at reducing the cost of building fast networks, and published a draft Gigabit Recommendation "which seeks to provide guidance to National Regulatory Authorities on the conditions of access to telecom networks of operators with significant market power, in order to incentivize faster switch-off of legacy technologies and accelerated Gigabit networks deployment."

I wish they'd "incentivise" providing fibre replacement where old copper was ripped out. Don't get me wrong, LTE is not too shabby, but still nowhere as good as fibre for latency (and throughput) not to mention sensitivity to weather.

[Grogan]

"Big Tech" already pays for their bandwidth and peering. The users accessing their services pay for their Internet connectivity too. Don't like it? Change how you sell it. But don't make a special case for someone using what they are paying for, because you resent that they are the ones making money.

[Yes Me]

Very specifically, cell "phone" providers only get any money at all from data services because their customers want access to Internet data. These providers are already handsomely rewarded for carrying Internet traffic. What they are lobbying for is a double dip, and there is no reason they should get it.

[farnz]

Underlying dynamic triggering this

The underlying dynamic triggering this, though, is that their mutual customers aren't willing to pay cellular network providers more for data - if you increase the price, they'll either reduce usage and pay you less, or they'll move to a competing carrier. They're also not willing to pay the "big tech" firms more for access, either - customers are pretty much paying as much as they're willing to pay. Carriers, however, aren't happy with their profits - and note that they *are* profitable, it's just that the profits aren't as high as they'd like. Given that you can't charge customers more (since if you do so, they go to competitors, or give up using as much data), your remaining option is to find someone else who'll pay you.

Carriers now have a deep problem. EU Net Neutrality regs stop them shaking down Big Tech directly; they could put artificial latency and throughput barriers in place, and allow Big Tech to pay to bypass them, but then customers will go elsewhere, dropping your profits. So the only route to increase profits is to get the regulations changed so that you can shake down Big Tech without (e.g.) being the slowest network on speed tests, or painful to use when a customer uses your network to remotely access a work network to fix something. If you do make your network painful for any source of traffic that doesn't pay, customers will switch, and while your margins go up, your profits fall.

[Anonymous Coward]

Seriously?

I pay much more to my ISP each month for Internet connection than I do paying for Netflix or whatever. If anything, the ISPs should be paying Google for the content I want... I doubt that the adverts I get shown amount to much.