European telecom operators claim that the growth in Internet traffic has created a situation in which they are unable to realize a “sustainable” return on network investments. The solution, they say, is to demand payment — not just from their end users, but also from popular tech companies that send data in response to end user requests. At least that’s what telecommunications lobbyists are telling European politicians and lawmakers. But do their financial reports to shareholders show a different story?
In a recent letterthe CEOs of Telefónica, Deutsche Telekom, Vodafone and Orange, have argued that online players should contribute financially to network upgrades if Europe is still to meet its ambitious target connectivity goals. This ignores the fact that tech companies are already investing heavily in infrastructure, think for example Google submarine cables or Netflix investments in Open Connect CDN. However, the telecoms campaign has apparently prompted the European Commission to question whether or not regulatory intervention is necessary.
But increases internet traffic growth really the insurmountable problem that telecom operators claim? A recent study by Communication chambers otherwise found; arguing that the demand for internet traffic actually fuels the revenues of telecommunications operators, for example through fixed lines, including fiber cables, and tiered mobile data tariffs.
This could explain why telecom operators are trying to attract data-hungry customers by using streaming services to promote their own offerings. If data traffic is really unmanageable or undesirable for them, surely telcos wouldn’t actively target this specific customer segment?
It should also be noted that traffic growth does not increase exponentially as is commonly thought. Instead, the communications chambers found that data growth has actually declined – for fixed and mobile access – in recent years (apart from a short-lived spike during shutdowns). If growth in data traffic is indeed generating revenue for telecom operators, then perhaps they should be more concerned about declining demand for data traffic (which a tax on internet traffic would cause)?
The latest financial reports from telecom operators do not paint a picture of an industry in such dire straits that it justifies their attempt to seek rent from other industries, nor has the surge in internet traffic weakened their financial performance. On the contrary, the CEO of the Vodafone group, Nick Read said in may that they had “delivered a good financial performance over the year with growth in revenues, profits and cash flow, in line with our medium-term financial ambitions”. Vodafone reported a profit of €2.6 billion for the financial year.
Telefonica reported that it “accelerated growth in the first quarter of 2022, recording increased revenue across all of the company’s markets in reported terms, and net profit of 706 million euros”. Meanwhile, Orange said it continues to “reap the benefits of our European leadership in fiber and 5G networks with a 2% increase in our retail sales growth in these first three months.”
Likewise, after the strong 2021 financial year, Deutsche Telekom continued to grow in the first three months of 2022. 10%, boasted the German incumbent. His Net income 2021 were 5.9 billion euros. “We are continuing to grow on an organic basis and are therefore able to raise our guidance for 2022,” said Christian Illek, chief financial officer of Deutsche Telekom. said when presenting the quarterly figures.
Indeed, telecom operators share very different messages about their own ability to invest in networks depending on who is listening. When talking to EU lawmakers, traffic growth is an insurmountable burden, but in earnings calls with their shareholders and investors, traffic growth appears to be a major driver of growth. Because contrary to lobbying speeches, companies are subject to obligations of transparency when they report on their financial situation.
Telecom operators should start telling European lawmakers the same story they share with investors: the truth is that exciting apps and online content drive demand for telecom operators’ services, which in turn generate more income. Taxing Internet traffic would therefore amount to taxing what telecommunications operators and Europeans really want more of.