The tax on Internet traffic with the curious potential of Europe

Some of Europe’s telecom operators are seeking to radically change the way the internet works, forcing major providers of content, apps and cloud services, such as Amazon, Google, Microsoft and Netflix, to pay additional fees for internet. infrastructure. It is bad policy.

Telecommunications companies (telcos) claim that large tech companies consume a disproportionate amount of bandwidth. They cite a recent report by Axon Partners claiming that data growth generated by apps and streaming services makes “little or no economic contribution to the development of national telecommunications networks”.

The European Commission seems sympathetic. On September 9, European Commissioner Thierry Breton said that a consultation on the issue would be opened early next year. In recent interviews, Breton has signaled that he wants to legislate, believing that “we must reorganize the fair remuneration of the networks”.

Yet the reorganization makes no sense. Data growth is an opportunity, not a problem, for telecom operators concludes my recent study. An internet tax would hurt rather than help investment in infrastructure, which would reduce innovation in content and applications. This would undermine the Commission’s vision for digital transformation, which aims for 75% of European businesses to use cloud technology, artificial intelligence and big data by 2030.

Here’s why.

Additional traffic costs range from around zero for landline access to low and decreasing costs for mobile networks – otherwise the increased traffic could not have been accommodated. At the same time, demand for data is driving telecom operator revenues, driving fixed access subscriptions and encouraging consumers to pay more for additional mobile data. Telecom operators themselves see data growth as good, not bad. “The growing demand for mobile data is the obvious driver for the future growth of the business,” said Telefonica in Spain. said in 2020.

An internet tax would reduce, not increase, infrastructure investment. If you give money to telecom operators while demand and access prices remain unchanged, the money will go to shareholders. After all, money does not increase the demand or price of broadband access on which the real investment case depends.

If you tax content and applications, you will reduce the development, adoption and use of content and applications, on which the business case for network investments depends. This danger explains why the GSMA mobile operator association has long campaigned against such taxes, including a proposed and ultimately rejected Hungarian traffic data tax.

Where the equivalent of an internet tax has been imposed in South Korea, the impact has been negative. Consultants WIK, in a study for the German regulator, reported “a decline in the diversity of online content and an increase in prices for end-users of the content, as well as a decline in investment in network infrastructure”. Even the “end-user quality is declining,” WIK found.

And then there is the threat to net neutrality, the key principle ensuring that all data is treated equally and internet users have equal access to online content and applications. If telcos succeed in charging content and app providers, 34 NGOs across 17 countries warned in an open letter that the move would “undermine and conflict with core net neutrality protections in the world.” European Union “.

For all these reasons, European lawmakers rejected the claims and demands of the telecommunications industry more than a decade ago. So what has changed since then? Well, we have a better understanding of the growing role of internet-based content and applications in the wake of the COVID pandemic, and we know that digitization has a key role to play in a series of critical areas, including the EU’s transition to climate neutrality.

Despite all this evidence, there seems to be momentum in Brussels behind an internet traffic tax. Commissioner Breton should take a look. Given that this would undermine investments in commercial networks and the European Commission’s own digitization goals, as well as a conflict with net neutrality, there are still good reasons to reject the idea.

If Europe wants more digitization, it shouldn’t tax it.

Brian Williamson is a partner at Communications Chambers and author of the study “A tax on Internet traffic would harm Europe’s digital transformation” who has recently been launched at the Lisbon Council.

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