In December this year, the European Commission will propose the Digital Networks Act (DNA) – a landmark revision of the EU telecoms regulatory framework. As we await the consultation’s launch, it worth stepping back to consider the potential pitfalls the Commission should avoid in the DNA.
1. Building legislation on questionable ‘predictions’
There is a belief among certain high-ranking Commission officials that telecoms and cloud sectors are converging and can be regulated as one.
‘We no longer see a difference between telco and cloud providers’
Said one of them at an event last year. Such a flawed view of these two markets – which are adjacent, but clearly separate – are very concerning coming from the EU’s executive. Compute, data storage, content, software, and connectivity services all work together, but this does not mean that they can be regulated in a ‘one-size-fits-all’ manner. The fallacy of ‘telco-cloud convergence’ has no basis in the reality of operating in the complex digital ecosystems essential for delivering the connected services we already take for granted.
Cloud is a horizontal technology that provides the platforms, infrastructure and services used by all to achieve digital transformation. Telcos are significant cloud users and benefit from cost and resource efficiencies through cloudification of their networks. But many other sectors are reimagining and improving operations by moving to the cloud. No one argues that cloud and transportation sectors are converging simply because train companies use cloud technologies to be more efficient and improve customer experience!
The heritage, operations and economic structures of cloud infrastructure providers and telecoms are radically different, as are the regulatory environments in which they operate. Regulations designed for former state monopolies privatised with specific ongoing service delivery requirements are unsuited to the privately funded, highly competitive and entrepreneurial world of cloud provision.
2. Dispute Resolution: Robbing Peter to Pay Paul
The Commission’s White Paper envisages a new dispute resolution mechanism to cover interconnection agreements between cloud service providers and telecoms. These interconnections are essential to deliver content, data and services hosted by cloud providers to customers. Telecoms providers usually own the ‘last mile’ to the customer, and so they have monopoly over carrying traffic to consumers (which is what customers pay for). Today, most interconnection agreements are on a ‘handshake basis’ – in other words, without payment by either side, as they are driven by mutual interest and positive market dynamics. This is the foundation which allowed the internet to be such a resilient technology even as traffic continues to grow.
Our concern is that imposing a formal, legally binding resolution mechanism will create what it was supposed to destroy, and end up becoming a catalyst for more disputes. Currently, most telcos do not ask for peering payments as they recognise the mutually beneficial nature of their relationship with cloud providers (and the few that do charge are likely breaking Net Neutrality rules – see point 3 below). However, with such a mechanism in place, they will feel empowered to start charging high interconnection fees, undermining the very structure – and therefore resilience – of the global internet. Given that telco’s and cloud infrastructure providers invest comparable percentages of their revenues in building and expanding infrastructure, an alternative “fair share” solution would be to make a settlement free exchange of in-country content with in-country consumers mandatory.
Importantly, whilst the telco sector is fond of identifying foreign cloud and content providers as the only companies affected, European cloud infrastructure service providers – and indirectly their customers – will almost certainly find themselves as ‘collateral damage’. Indeed, ‘Big Tech’ providers will probably be able to exert enough pressure to get a sweetheart deal, while European business and consumers are likely to pay the price ultimately.
3. Undermining Net-Neutrality
BEREC highlighted in its recent report on IP interconnection that the few interconnection disputes that exist likely amount to breaches of the 2015 Open Internet Regulation. Telcos are accused of degrading network quality, creating artificial congestion or imposing additional requirements for cloud service providers when peering (interconnecting) with their networks. These practices are already illegal and contrary to the principle of net-neutrality.
The recent consumer complaint to German telecommunications regulator (BnetzA) about Deutsch Telekom illustrates the harm to individuals and businesses of this behaviour (inaccessible services, slow loading web pages etc). CISPE is concerned that unnecessary new dispute mechanisms could make sure practices more prevalent, while undermining existing legislation and thus leading to confusion, delays and increased costs for cloud customers.
4. Awakening the Fair Share Zombie
Ultimately, CISPE is deeply concerned that the DNA could revitalise the discredited idea of introducing a de facto “Internet traffic fee” to be paid by cloud and content providers to large incumbent operators. This concept, marketed under the misleading term of “fair share,” is an incumbent telco-driven initiative seeking to increase profitability, which argues that content providers should contribute financially to network buildout instead of ‘free-riding’ on telcos’ capacity.
In reality, all players in the internet infrastructure value chain invest significantly in network capacity and infrastructure. Cloud providers are behind some of the most capital intensive and beneficial infrastructure projects including servers, storage platforms and data centres crucial to the connected digital economy.
More fundamentally, the data sent across telco networks are the content and services requested by their customers. Whether it is a streaming movie, sending an email or uploading a picture from their phone, these are the services that customers want, and which telcos use to differentiate and justify the fees they charge. Once again, we must ensure that the DNA does not introduce double taxing for the same service, nor should it justify the reanimation of long-dead proposals for network traffic levies.
5. Tying SMEs in Red Tape
Extending telecom regulation to cloud providers risks imposing significant additional red tape and regulatory burdens, disproportionately affecting European SMEs in the cloud sector. The current focus on incumbents and hyperscalers, and the false equivalence of “cloud provider” with the largest players, misses the impact on smaller businesses.
Based on Wrong Premises and Ignoring Market Realities
In conclusion, while the aspiration to strengthen Europe’s digital infrastructure is commendable, extending telecom-style regulation to cloud infrastructure will be counterproductive and will jeopardise the €1.5 trillion in economic value expected to be unlocked by cloud-dependent elements of the EU Digital Decade Programme. CISPE urges all those responding to the DNA consultation to take these issues into consideration.
