Network usage charges will hurt European consumers and businesses

Network usage fees, the idea that certain types of businesses should pay Internet Service Providers (ISPs) for the ability to deliver their content to consumers, harms consumers and breaks with the status quo that has facilitated rapid spread of the global Internet. ISPs say these rates are necessary because the cost of providing Internet service has unfairly increased for them. This is false. Basically, network usage charges are a ploy by the major ISPs to extort monopoly rents, kill the competition, and further strengthen their monopoly power.

The European Union (EU) has been discussing whether or not to adopt a tariff regime for the use of the network and will continue its deliberations in early 2023. They must be taken to realize how these tariffs are harmful and prevented from giving in to the pressure from ISPs to adopt the scheme.

What are network usage rates and ISP topic

The main argument of the largest ISPs is as follows: The companies that create and/or supply information and online media, called content and application providers (CAPs), deliver their services through the physical infrastructure networks that make up the Internet. Think YouTube, Netflix and Disney+. ISPs, who built the infrastructure (sometimes with government funds), claim to incur costs for providing the service while CAPs can simply use the network for free. CAPs would then have to pay ISPs for providing these services because CAPs download the networks that ISPs have built for free and have to pay to maintain them. If CAPs want to use the network, they would have to pay a fee based on how much they use, hence the term network usage fee.

The specific type of network usage fee that ISPs want is called “sender network pays” (SPNP). To explain with an example, when someone on the Internet wants to watch a video, what he is doing is requesting that the video be delivered to him in the form of data. CAPs that receive such a request send that data to the person who made the request. That information has to go through the ISP’s network to get back to the person. Since CAPs are the “sender’s network” here, they have to pay the ISP for what they send. This is the basis of SPNP. Also, if zip code information is to be sent through multiple ISPs within an SPNP scheme, all those ISPs must be paid. Some SPNP models also want all ISPs to pay each other when they send traffic through each other’s networks. The major ISPs benefit from this arrangement because they already control the largest networks. Smaller and newer ISPs that have less extensive networks are essentially out of business over time from these types of fees.

The ISP’s side argument is that the increase in Internet traffic everywhere was caused by CAPs. CAPs like YouTube and Disney+ allegedly leverage unpaid infrastructure to boost Internet traffic around the world. From this framing, network usage rates are CAPs finally paying their “fair share” for network usage.

Finally, ISPs say the money will go towards building infrastructure and expanding the physical reach of the modern Internet.

How and why the ISP argument completely ignores reality

New research by Analysys Mason finally he gives us concrete figures showing why the ISPs’ arguments completely mischaracterize the relationship between CAP and ISP. CAPs also invest heavily in the physical infrastructure of the Internet. Their network investments bail out ISPs billions of dollars a yearand the costs incurred by ISPs to provide the traffic have not increased dramatically despite the increase in traffic.

For starters, CAPs don’t load empty. From 2011 to 2022, CAPs collectively invested nearly $900 billion in infrastructure that hosts, transports and delivers their services. These investments are made for the purpose of increasing the reliability and quality of their services globally, which basically means making sure their services reach consumers faster with less latency. What it looks like physically is the construction of transoceanic cables to carry data around the world, data centers to bring content closer to the consumer and data caches that bring their services even closer. What this practically means for consumers is faster and more reliable service, no matter where they are. From 2018 to 2021, CAPs spent about $120 billion a year. These investments are only increasing in response to consumer usage.

From the investments made by CAPs, ISPs save anywhere from $5 billion to $6.4 billion annually. When CAPs bring their services closer to consumers, ISP networks do much less work. Instead of having to carry data thousands of miles from YouTube’s California headquarters to Seoul, South Korea, an ISP can instead tap into a data cache that YouTube has placed in Seoul, South Korea itself, to provide the same data, but only at a distance of two miles. The difference in cost of delivering data for thousands of miles versus two miles across billions of content requests is what is saved and runs into the billions each year.

While ISPs are saving on CAP investments, fundamentally the cost for an ISP to operate a network has little or nothing to do with the actual traffic going through the networks. In fact, the cost of traffic is only a fraction of the costs of an ISP. Traffic is not cost sensitive. One reason is that the networks themselves are built to handle high volumes of traffic. As can be seen from the graph in the Analysys Mason report, despite the ever-increasing demand for Internet traffic, the cost for global ISPs has remained broadly stable.

The other big reason is that ISPs’ costs of maintaining networks and delivering traffic go down as they roll out more fiber. A large part of the reason that costs remain stable despite the rapid annual increase in usage is due to optical fiber. How has eff written extensivelyNot only is fiber cheaper to maintain and upgrade than legacy infrastructure, it also has higher speeds and traffic capacities than we’ve been able to formally predict. As ISPs move to more and more fiber, not only should networks become cheaper to maintain, but they will also become increasingly insensitive to traffic demands. In other words, the future of the Internet with the right infrastructure is ever faster speeds at lower costs (and prices paid by users).

Network usage charges hurt consumers

Net usage charges harm consumers and pose a direct threat to net neutrality. The cost of network usage fees will be passed on to consumers via a more expensive Internet.

Net neutrality principles are directly threatened by net usage charges. In the event of a payment refusal by CAPs, ISPs may slow down (intentionally lower the speed of service) for content requested by a user. An ISP may even have the right to terminate CAPs’ ability to deliver content and services to consumers, even if consumers request it. ISPs that own streaming services — streaming services that would otherwise be CAPs — can also favorably favor their own service over that of the competition, distorting what a consumer can and can’t watch. Net neutrality as a principle it’s about treating all traffic equally so that the consumer can decide for themselves how they want their experience to be. Network usage rates take that decision away from the consumer and give it to the ISPs by allowing them to engage in discriminatory practices to control what you can and can’t see.

Network usage charges distort the market, so the largest ISP benefits disproportionately to the detriment of all consumers. As EFF wrote earlier, net neutrality and competition are needed if we are to incentivize ISPs to do better. Without competition, ISPs can and do charge more for worse service. On the CAP side, they will pass the cost of network usage fees onto consumers both tangibly as higher subscription fees and intangiblely as worse service. Again, consumers will have to contend with paying more for less.

Network usage fees and the European Union

The debate on network usage fees is ongoing in the EU and they are expected to deliberate on it again in early 2023. The network usage fees were raised and pushed back in 2012, but due to relentless financial pressure from the of the major ISPs, the question has come back. Fortunately, the EU’s telecommunications regulator, the Body of European Regulators for Electronic Communications (BEREC), published a preliminary report refuse network usage fees and any similar interference in the market. Furthermore, small and medium sized ISPs in Europe they rallied to oppose the idea, realizing that network usage fees do not benefit them.

The prospects in the EU are currently optimistic, but we will not meet optimism with complacency. We urge the EU to once again reject the adoption of tariffs for the use of the network.