Contact Us

Disruptive Competition Project

655 15th St., NW

Suite 410

Washington, D.C. 20005

Phone: (202) 783-0070
Fax: (202) 783-0534

Contact Us

Please fill out this form and we will get in touch with you shortly.

Fast Internet Doesn’t Cost EU Telecom Operators Much at All

“The unsurmountable cost of OTT’s traffic for Europe” is the alarmist title of a recent article by Telefónica’s Chief of Public Policy. Basing himself on reports commissioned by the European Telecommunications Network Operators’ Association (ETNO), he tries to make a case for the introduction of EU network usage fees.

The telco lobbyist states that “exponential Internet data traffic growth poses a challenge to the sustainability of investment in European networks,” arguing that content and application providers (CAPs) therefore should be mandated by the EU to pay for the networks of telcos. In doing so, he also asks the question: “What is actually the cost of delivering the traffic?”

Well, the answer to that is pretty simple: providing Europeans with fast(er) internet actually doesn’t cost telcos a penny, and this blog post demonstrates that the cost of customer demand for OTT traffic is anything but “unsurmountable”. In case you are not familiar with the acronym, over-the-top (OTT) traffic is basically everything you do on the Internet that involves third-party service providers other than your internet provider.

Apparently your internet subscription is still not expensive enough

So, what telco lobbyists are basically saying is that whenever you read an article like this one, watch a video on social media, upload files to the cloud, or join an online meeting, you are causing huge costs for telecom operators and putting a strain on Europe’s broadband network. Apparently, your monthly fixed and mobile internet subscriptions are still not expensive enough to cover all the costs. Telcos now argue that they need up to €36 billion extra per year, or €80 per European, to manage your day-to-day internet traffic.

The solution proposed by telcos is not to raise prices by €80 per person. Instead, they want to charge them indirectly by making online services more expensive. Telcos now demand payments of up to €36 billion annually from CAPs – coming on top of what they already make you pay for internet access.

However, telcos actually do not need any extraordinary financial capacity to achieve the European Commission’s Gigabit Society goal of connecting all EU households to a fast network with a speed of 1 gigabit per second (Gbps) by 2030. Telcos are making a profit and don’t need an “internet traffic tax” to handle consumers’ growing appetite for streaming movies and series, conference calls, social media, cloud, gaming, and other online services – nor do they need to tax traffic in order to keep their networks operational!

What’s the basis for telcos’ €36 billion claim?

Neither ETNO nor Frontier Economics have been very open about the numbers they used to make their calculations. What they say basically boils down to the following: “Capital expenditure by EU telecom firms was €52.5 billion in 2020 and internet traffic from CAPs accounts for 60-70%, so these firms should pay us €36 billion each year.” Telcos also argue they need even more money in the future, because consumers will use more data every year. That is stunningly simplistic and just wrong.

Telecom operators spend their capital investment on infrastructure – like cell towers, fibre optic cables, routers, modems, and data centres – in order to connect people to broadband networks and extend 5G coverage. Furthermore, 70-80% of their capital investment goes to assets that will last for 30 years at least. The remainder is for equipment that is upgraded every five to 10 years for better and faster services. ETNO’s demands for “fair share” payments basically mean they want CAPs to cover 60-70% of their total network costs, while at the same time already charging consumers for those very same networks.

Perhaps we should let the French telcos do the math instead of ETNO. The Fédération Française des Télécoms (FTT) has in fact said that operators only need a third of ETNO’s estimate to handle consumers’ internet consumption! According to the FFT, traffic costs of OTT services are €2 billion per year, or €27 per inhabitant of France. But even that is an outrageously high amount. Both ETNO and the FTT grossly overstate the amount of capital required. Traffic just doesn’t cost that much to handle.

Do consumers really need faster internet connections?

A good question to start with is whether consumers really need that much bandwidth, particularly when average use is much lower. The answer is an emphatic yes! Websites, video platforms and other services need to send their users high-bandwidth data in short bursts.

This is comparable to using tap water to fill a bucket. You don’t use a trickle of water for a long time, you open the faucet to get the full stream for a few seconds. It would not be helpful if filling a bucket took half an hour. The water utility relies on the fact that not everyone is using water at the same time.

The key factor here is “contention,” how many users can use the same service at the same time when sharing bandwidth. If 10 MB worth of data – say, three or four pictures from a decent smartphone – was sent over a 1 megabit per second (Mbps) connection, a thousand times slower than a gigabit connection, you would have to wait for more than one minute!

Much of what you do on the Internet uses short bursts to send and receive data. We did some tests using the gigabit connection of our office. Opening a web page will use 30-200 Mbps capacity for a short burst, often less than a second. It’s a few megabytes, but you shouldn’t have to wait longer than a second for it. And that is why you want a gigabit connection. By contrast, streaming doesn’t require gigabit speeds, but instead uses a steady trickle of data of 2-10 Mbps for a few hours, which amounts to several gigabytes in total.

The ETNO website, for example, contains a video library. All those embedded videos need to be loaded before the webpage is complete. Our tests show – somewhat ironically – that the telco lobby’s own website produced one of the highest burst speeds that we came across. Newspapers and other telco websites also draw plenty of bandwidth as you can see below.

These examples show that achieving the goal of a European Gigabit Society isn’t about how much data we consume each month. What is relevant is that we shouldn’t have to wait for that data.

As I explain in the two examples below, the equipment cost to deliver gigabit-per-second capacity to the average European is just a few euros per month. Once the one-time investment in laying fibre optic cables has been made – indeed an expensive investment, but one that can last for half a century – the costs of running the actual network, and managing traffic demand from customers, are relatively low.

Students can get 1 Gbps for €11 per month

Here’s a great example of how contention, using bandwidth for different users over time, helps to keep internet access affordable. In 2020, my company helped a Dutch student housing organisation that needed to re-tender the broadband service for its 41 dormitories throughout the city, housing 5,500 students in total. The fibre connections into every room were fine, but all the network equipment was up for replacement.

Eight Dutch telecom operators responded to this call for tender. Five of them said that each student could get gigabit broadband for a very reasonable €11 per month. Because the connecting lines could be shared efficiently, four 100 Gbps lines to the outside world were more than enough to guarantee every student access to the full 1 Gbps at all times.

Excessive bandwidth use was simply not an issue, nor were extra investments necessary in order to provide fast internet. As a matter of fact, this was the cheapest design possible, using off-the-shelf network equipment, and still delivered gigabit access. The costlier elements for the service provider were primarily the network switches, 24/7 support, and billing. However, all this could easily be provided to students for just €11 per month.

When you scale up from student housing to a country-wide broadband network some numbers might change, but the underlying principles stay exactly the same.

Back in 2013, Deutsche Telekom designed their Terastream network around 10 Gbps lines shared by 250 consumers. This assumed that a 4 x 100 Gbps backhaul per 5,000 customers to the regional core of the network was more than sufficient. That’s remarkably similar to what the students needed, with one telling difference though: Deutsche Telekom does not offer gigabit internet access for €11 per month.

French broadband users always get the fastest speed possible

Broadband providers in France already offer these sorts of high-bandwidth connections to consumers. Different upload and download speeds haven’t been used as a price differentiator for almost two decades now. Consumers simply always get the fastest speed the technology can handle. Nowadays, that’s up to 8 Gbps with XGS-PON data links.

Free, a French internet provider, already has commercial offers varying from one to 10 gigabits per second for €30-49 per month, including a phone line and TV. The pricing differences come from added devices and services, such as a better Wi-Fi router, the video-on-demand offer, or home security – not the cost of a faster connection.

These examples just go to show that the data requested from content and application providers (CAPs) by consumers is not putting an insurmountable financial burden on telecom operators. Consumers already pay telcos a monthly subscription fee for internet access, which includes the services provided by CAPs. The bandwidth they use is easy to handle and already paid for. Networks clearly don’t need to cost an additional €80 per European annually.

For more information about the author and this series of guest blog posts click here.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.