The writer was previously Italy’s minister for technological innovation and digital transition, and a former CEO of Vodafone Group Plc
The laying of the first transatlantic telegraph cable in the nineteenth century brought Europe and the US closer than they had ever been, ushering in an era of mutual prosperity. Today, a rift at the heart of the telecoms sector risks reversing decades of progress and plunging digital allies into a new phase of conflict.
Europe’s telecom companies want US corporations such as Alphabet, Netflix, Amazon and Meta to pay for the increasing video traffic they generate. These US giants originate data accounting for around 50 per cent of network loads. Europe’s telcos complain they bear massive additional costs without receiving any fees or extra revenues.
For their part, the US corporations argue that such cross-industry subsidies are a form of protectionism. Indeed, Alphabet, Netflix and Amazon already pay for their distribution platforms and related costs for content rights and production. They see these requests as a form of expropriation of their profits, which are much larger than those of the EU telcos.
As a result, member states, industry associations and European MPs stand divided on the issue, while the EU Commission has launched a consultation on the future of the telecoms industry. The discussion over such profound and complex questions will fuel aggressive lobbying from all sides and possibly end up in litigation. Europe instead needs a balanced approach which addresses the legitimate funding requirements of the telecoms companies without unfairly punishing content providers.
There is a strong social argument for ensuring that telcos earn a decent return on capital. At the moment its stands at a meagre 4 per cent, according to a recent analysis of established operators by JPMorgan, which is too low. A higher return would ensure there is adequate investment in ultra-wide and low-latency broadband (fibre and 5G) that would benefit both the welfare of citizens and the companies’ competitiveness. Industrial, agricultural, health, educational and mobility applications need fast, secure and low-latency networks. At the same time, it is clearly in the interest of European citizens that platforms distributing quality content can operate and thrive in Europe. It is right that, rather than feeling squeezed, US corporations contribute a fair proportion of the costs associated with distributing their videos.
A sensible compromise would be to only seek contributions from the largest operators — for example those loading above 5 or 7.5 per cent of a single network. These payments could be negotiated bilaterally between platforms and telecom companies, since investment requirements and networks are different. Antitrust authorities and regulators would only need to intervene — granting powers to access information and imposing a mandatory contribution based on the existing “abuse of economic dependence” legislation — if no agreement could be reached.
This approach would protect net neutrality and encourage genuine negotiations, reducing the risk of regulatory decisions which take time and often have unintended consequences. A market solution with safeguards is surely better than straight regulation or, worse, inaction.
However, these changes will not solve the networks’ problems with profitability and investment on their own. The EU should allow more in-market consolidation in the telecoms industry, reduce the support governments give to low-investment operators, and stop facilitating the assignment of frequencies to new entrants: all policies which distort fairness for established networks and squeeze them for spectrum renewals.
In short, the EU should reward those who are willing to invest. Much as with the transatlantic telegraph cables, all sides stand to gain from a robust, innovative and future-proof European telecoms infrastructure.
