The pandemic has exposed the inequality of those who lack access to broadband, connected devices and digital skills to work, learn and receive healthcare online. Policy research has emerged to investigate why broadband infrastructure and adoption gaps persist in a multi-trillion market. The short answer is a lack of business models. More broadly, broadband policy has been slow to evolve, and the largest and wealthiest internet platforms have lobbied to shirk universal access financial obligations.

Admittedly, the notions of universal access differ according to time and country and can be approached in different ways. Currently, the costs of connectivity are borne by end-users and broadband providers, yet there is one class of business that benefits disproportionately from the Internet but does not contribute to the cost recovery of midstream and last-mile networks . Notably, tech companies like Google, Facebook, Microsoft, Amazon, Apple, and Netflix are investing heavily in their own companies’ infrastructure (undersea cables, data centers, etc.), but they’re focusing where they’re not. regulated to maximize returns.

The problem is compounded by the fact that business models for broadband access have changed little since the early days of the Internet, when the killer application was email. It made sense then to copy and paste the telephone-to-internet paradigm, because a relatively equal traffic exchange could be managed on a settlement-free (zero cost) basis. However this is no longer the case. Today, a handful of players account for the bulk of Internet traffic and revenue. The UK Enders Analysis report shows that online search and e-commerce account for just 1% of internet traffic, but generate 87% of revenue.

While the ad industry uses revenue sharing to recoup ad network costs, these models are generally off limits to broadband providers, but if allowed, could help recoup costs to expand networks. to underserved people. To address digital inequity, increase infrastructure investment and ensure broadband sustainability, policymakers are exploring new approaches, whether ‘pay-as-you-go’, taxes or fees. .

Netflix Laws

It’s only fitting that the global broadband leader, South Korea, is breaking new ground in broadband policy. In 2020, the South Korean President and Parliament recognized that content and broadband providers have a responsibility to ensure data quality and that the growth of Internet traffic requires the provision of additional capacity, including the cost is not free.

In practice, content providers generating 1% or more of the total Internet or those with 1 million or more users pay a fee to guarantee the provision of network capacity. Facebook, Disney+, South Korea’s Naver and others are paying fees under the policy dubbed the Netflix Law. Netflix is ​​the world’s leading provider of video streaming entertainment with 220 million customers in some 200 countries. Even with recent inflationary downturns, its revenue in 2021 topped $30 billion, and the platform could roll out advertising later this year to supplement its revenue.

In South Korea, Netflix traffic has grown 24x in less than 3 years on a single network and represents 7.2% of the country’s traffic today (even though it reaches 30% in some countries). Netflix asserted that it had no obligation to negotiate or pay for the use of South Korean networks. The court rejected Netflix’s view that it was entitled to free delivery. Indeed, these fees are no different from the shipping costs that Netflix pays for delivery to its 2 million DVD customers by courier in the United States.

Netflix appealed the case and recruited the US ambassador to support it, but that stance is out of step with 7 out of 10 Americans who think Big Tech companies should contribute to the cost of the network.

Other Netflix laws require the company to share its revenue for local content development in India, Australia, Canada, many European countries and increasingly in US cities and states that have suffered a loss. in tax revenue due to the closure of cinemas, DVD rental stores, the reduction of cable franchises. fresh and so on.

The best cop in Europe for Big Tech

After years of policy that unwittingly bolstered Big Tech, the European Commission is grappling with an estimated €150-300 billion broadband investment gap in the region. Executive Vice President Margrethe Vestager weighs in on the matter, noting

“We see that there are players who generate a lot of traffic which then allows their business, . . . they have not contributed to enable investments in the deployment of connectivity. We are in the process of understanding in depth how that could be activated, to see if there are any asymmetries here in the markets that would make it fair to ask for a contribution to network investments.

Called the most powerful regulator in the world, Vestager has filed lawsuits against Google, Apple, Amazon, Facebook, Intel, Qualcomm, Gazprom and others. Meanwhile, financial analysts suggest that the resizing of EU regulations could boost broadband revenues by up to 10%, providing a much-needed source for infrastructure investment. Indeed, Big Tech’s coordinated efforts to avoid paying for the use of broadband networks could be considered a cartel.

Advertising taxes and credits

The US Congress just appropriated a record $65 billion in broadband subsidies. The amount is not borne by corporations but falls on Americans and their descendants and adds to the crushing federal deficit. Given the stratospheric profits and global tax arbitrage of some online businesses, Nobel economist Paul Romer has floated the idea of ​​an internet advertising tax to fund a range of social programs.

EcoOne details how low fees on Google and Facebook could bring in $20 billion a year for both builds and broadband upgrades. Unlike subsidies, the cost would be passed on to advertisers, not citizens or end users. Although the economy is strong, concerns remain about adding extra programs to an irresponsible bureaucracy. Moreover, the measure fails to address the root cause of the rising cost of broadband – streaming video entertainment – which accounts for up to 80% of global traffic and is growing at 30% annually.

Fair cost recovery

Congress and the Federal Communications Commission (FCC) are stepping up their efforts thanks to the leadership of Senators Cantwell (D-WA), Lujan (D-NM), Peters (D-MI) and Wicker (R-MI). The bipartisan Affordable Internet Funding Act with Trusted Contributions or FAIR Contribution Act (S. 2427) would require the FCC to study and report on the feasibility of funding the Universal Service Fund (USF) through contributions from online content and service providers. There is likely broad support for such an effort, as evidenced by many deposits to the FCC’s investigation into USF reform, precipitated by the impending implosion of USF over an unsustainable and regressive tax on telecommunications users.

Important proponents of integrating Big Tech into fair cost recovery for networks include the coalition of minority communities represented by Latino Coalition, Allvanza and the Hispanic Chamber of Commerce; 16 American associations affiliated with Asian Americans and Pacific Islanders; 7 groups promoting female empowerment; and dozens of other groups promoting civil and human rights. A letter explains, “…all companies that transmit user-specified information and benefit financially from the Internet ecosystem…should be required to support our nation’s bold connectivity agenda.”

The Digital Progress Institute calls for shifting the burden of contributions from consumers to businesses that profit from universal service. Even the Free State Foundation, known for its preference for small governments, observed that “contributions from popular online video and voice calling providers… would help strengthen universal service. . . Until Big Tech companies have to make contributions like traditional voice carriers, universal service lacks competitive neutrality,” a legal requirement.

Internet Innovation Alliance joins, “Tying USF funding to those who benefit from gaming, streaming, and bandwidth-intensive content that users want would dramatically improve the sustainability of the fund for current and future generations, unlike simplistic and regressive proposals.” The Small Company Coalition adds, “We urge the Commission to undertake meaningful reform that would require the entities that use our networks the most to pay for their use.” National Grange, the association of communities and agriculture reflects,There is a much wider range of actors who benefit and profit from the Internet economy than those who currently contribute to USF and the vital connectivity programs it funds. A group of international academics and policy specialists also provided support.

Pay as you go

Achieving digital equity does not necessarily require heavy-handed government solutions or the participation of every online actor. The cloud services market demonstrates the monetization of traffic usage with a “pay as you grow” model that scales for individuals and businesses. The access price is based on the volume of traffic that buyers control by selecting preferred equipment, quality, service, time, etc. Such innovation would incentivize content providers to make their video content more effective from the start, before it is dumped into networks where neither end users nor broadband providers can control its volume or behavior. The transparent solution that Big Tech has invented could be just the ticket to end its free ride on broadband networks.