how Internet providers are trying to attract investments in network infrastructure
Telecoms in many countries are promoting the idea of a “traffic tax” for content providers. The initiative is dictated by the increase in fiber optic prices and the ever-increasing load on the network. Large content providers oppose it, because they believe that they already invest enough money in the development of infrastructure, and are also affected by the global crisis. Earlier we raised this topic, today we will consider fresh arguments from both sides of the barricades.
There is a crisis around
Networking equipment is getting more expensive around the world, with fiber prices in Europe, India and China up a record 70% since March 2021. One of the reasons is the rising cost of the main components for its production (helium and silicon chloride). The volume of fiber optic shipments also decreased in Russia. Mainly due to the disruption of supply chains of raw materials — preforms, blanks for fiber optic extraction, which were previously purchased in Japan and the Netherlands.
All this causes an increase in the prices of Internet services. In Russia, the cost of home Internet and communication services is also expected to increase, but in Great Britain they have already increased by 14.4%.
The publication US News conducted a survey among 3,500 US citizens and found out that they note the doubling of the cost of home Internet, if compared with the amount of payments at the time of connection of the service. At the same time, one of the largest telecoms reported a reduction in the number of subscribers. Among the key reasons, the provider singled out high inflation and the fall in real incomes of the population over the past three years.
Against the background of what is happening, the American government financed the development of broadband Internet in the amount of 97 billion dollars. The money is directed to the construction of network infrastructure in rural areas and hard-to-reach regions, as well as discounts for low-income families. For example, in Los Angeles, thanks to state subsidies, almost three thousand people, who previously could not afford it, got access to broadband Internet.
However, such financial support cannot last indefinitely. Providers are worried that the cancellation of subsidies will affect their incomes. At the same time, telecoms are investing heavily in expanding fiber optic networks. Experts note that over the past few years, against the background of low interest rates and high demand for high-speed Internet, many projects to modernize fiber optic infrastructure have been planned. However, the situation has changed: the rates have increased, as have the cost of labor and materials. In order to find new sources of funding and protect themselves from customer churn, telecommunications companies are pushing for the introduction of a “traffic tax.” They intend to oblige large IT companies, video hosting companies and social networks to pay additional fees for using the Internet infrastructure.
What is already being done in the west
The very idea of a traffic tax is not new – European telecoms tried to promote it back in 2012, but without success. The issue was returned to during the pandemic, when the load on providers increased tenfold. Today, telecoms are trying to justify their initiative by the fact that the investment of digital giants in the development of network infrastructure will lead to an increase in GDP and an improvement in the quality of services.
However, in addition to the “traffic tax”, European telecommunications companies are looking for alternative ways to attract investment and survive the crisis. Some telecoms are merging with partners, as France’s Orange and Spain’s MasMovil did. The companies plan to attract investment through the sale of their shares on the stock market, but the prospects for the merger depend on the decision of the European Commission. Regulators fear that reducing the number of providers will lead to a weakening of competition in the market and its gradual monopolization.
The US is also considering the issue of introducing a traffic tax at the legislative level. The telecoms are proposing that Google and Netflix pay the tax not directly to themselves, but to contribute funds to a special fund under state management. Providers hope that the money will be directed exclusively to the construction of network infrastructure. Although this idea is met with resistance. There is an opinion that telecoms already receive enough funds from their customers and taxpayers to modernize their networks.
How are things in other countries?
If we talk about countries that have already introduced a traffic tax, South Korea is at the top of the list. And the results of the initiative are somewhat contradictory. Some content providers were forced to reduce the quality of their services or leave the Korean market altogether. For example, Twitch recently did this. The management of the platform explained the decision by the fact that, despite all efforts to reduce the costs of operating the service, local network fees are still many times higher than in other countries.
South Korea’s experience is usually presented as negative, but there is a positive side. Despite all the arguments about the deterioration of the situation in the market of Internet services, statistics show otherwise. For example, Google’s statement about the decrease in the amount of content produced in the country contradicts the information about its annual five percent growth. Also, the statement of the CEO of Netflix that the traffic tax will reduce financial flows to the country is contrary to last year’s investment in the Korean unit for half a billion dollars.
As for the development of fiber optic networks and 5G technologies, South Korea occupies one of the leading positions. According to the report of the Organization for Economic Cooperation and Development (OECD), 80% of the country’s broadband Internet is accounted for by fiber, and 45% of users are connected to 5G.
The idea of introducing a traffic tax is being picked up in India today. Indian telecoms are also demanding compensation from major Internet services for building and maintaining the infrastructure. However, the state continues to reject initiatives, citing compliance with net neutrality.
It is noteworthy that while some Indian providers are trying to convince the authorities, others are actively cooperating with streaming giants and offering users tariffs with subscriptions to series and other content already included. For example, Netflix and Jio, an Indian Internet provider, have teamed up on mutually beneficial terms. Yes, the streaming service expands the customer base, and the TV attracts money.
This is not the only example of cooperation between content providers and telecommunications companies. Last year, Google Cloud and Deutsche Telekom signed an agreement to improve networks. They plan to develop 5G technology, optimize infrastructure and improve customer service.
Another example of cooperation between Internet and content providers can be found in Kenya. When Spotify entered the African market, many residents did not have bank accounts to open and pay for music subscriptions. Streaming then teamed up with African telecommunications company Safaricom, which owns the M-Pesa payment system, to implement relatively simple access to services.
Big content providers oppose a “traffic tax”. They believe that they are already investing enough money in infrastructure. For example, they lay underwater communication lines and build data centers. Yes, there are about 700 Netflix caching servers in the EU, which significantly reduce the load on the network.
Even the largest IT companies are launching their own telecom divisions. Yes, Aalyria, a subsidiary of Google, is developing laser communication technology. With its help, it will be possible to transmit data where there is no classic network infrastructure, for example, in remote regions and rural areas.
Opponents of the traffic tax also say that its introduction would violate the principle of net neutrality, as telecoms could block traffic or have an excuse to charge higher fees to some users. At this stage, the situation remains tense. However, alternative approaches to solving the problem of investments in network infrastructure – public networks – are also being developed. They are subsidized by the local government and private companies that lease ready-made infrastructure to small Internet operators. At the same time, the price for users remains low, and the risk of monopolization of the telecom market decreases.
What to read on the topic
The FCC, the public Internet, and 5G: what about net neutrality. We are talking about the situation with net neutrality in the USA. Against this background, the public Internet is gaining popularity, when local authorities develop local networks without the participation of monopolists.
ISPs vs Corporations and Regulatory Chaos: What’s Happening to Net Neutrality in the World. We discuss the net neutrality crisis in the US and around the world. Proponents of its abolition argue that it inhibits the development of telecommunications. Their opponents fear that operators will favor larger content providers.
The pot, don’t boil it – isn’t it time to stop laying fiber optic networks. We discuss why there was a “bubble” in the market of optical fiber networks, how it affected the development of network infrastructure in the world, and what will be done about it.
What does the future of fiber optic infrastructure look like? We talk about the non-target capabilities of fiber optic cables. They will help register seismic activity or detect leaks in the city’s water supply system.
Microcables and twisted optical fibers – in which directions are optical fiber technologies developing. Briefly about what technologies are on the market, which are being developed and why fiber optic networks will remain with us for a long time.