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How Network Fees Would Hit European SMEs Disproportionately Hard

The European debate about the possible introduction of network fees is often being reduced to a “Big Tech vs Big Telcos” narrative. Proponents of network usage fees keep deflecting from the impact fees would have on European organisations far and wide, including small and medium-sized companies. 

Telecom operators try to reassure those worried by their “fair share” demands by repeating that it’s just a small number of companies they are after. This is simply misleading, as many European businesses use online services offered by those very companies that telcos are targeting. Think about users of cloud computing services for instance.

Disproportionate impact on SMEs

Imposing network fees on cloud providers would have severe downstream effects on hundreds of thousands of European organisations, as it raises the costs of services that are vital to their day-to-day operations.

The uptake of cloud-based services has increased significantly in the EU in recent years. The European Commission is also enthusiastically promoting migration to the cloud, its 2030 Digital Decade Policy Programme states that at least 75% of EU enterprises should have done so by 2030. 

Today even the smallest companies no longer have a self-hosted server in their basement, as they did a decade ago. Small and medium-sized enterprises (SMEs) are instead benefitting from a myriad of cloud-based services that offer them more efficient, flexible, and affordable solutions. 

So, how would a possible fee on internet traffic hamper the EU’s successful migration to the cloud? Analysys Mason found that “smaller enterprises are increasingly favouring cloud services from [content and application providers] as opposed to the more traditional leasing of co-location space directly from third-party data-centre providers.” In other words, European SMEs particularly prefer the cloud services of the companies telcos now seek to impose fees on.

A recent Plum study warned that “a fee on traffic delivered from cloud providers would be a direct disincentive for” SMEs to make more use of the cloud. So, all those companies the Commission is now encouraging to migrate to the cloud, might soon come to regret that decision should the Commission decide to introduce network fees. 

Mandating cloud providers to make “(un)fair share” payments to Big Telcos would translate into more expensive services for European businesses of any size. This would make Europe less competitive and less likely to go digital. Ultimately, these costs would trickle down to consumers, who would end up paying higher prices for cloud-powered European products and services.

What is more, almost all major telecom operators also offer their own competing cloud services these days. It is just that they are not very popular. Logically, telcos’ cloud offerings should also be taxed, which – paradoxically – means telcos would have to charge and pay themselves… If the imposition of network fees somehow would only fall on the most popular cloud services, then that might actually force Europeans to switch to suboptimal telco-owned services. A few telco CEOs might pop a bottle of champagne to celebrate, but millions of Europeans would be left with the hangover.

Benefits of the cloud will be lost

The cloud impact of network fees would indeed be bigger than one might initially think. Plum gives a good example of how network fees would even affect things like the cost of healthcare. The French Doctolib healthcare service, for instance, is hosted on a popular cloud platform. But their traffic would be identified as originating from that “Big Tech” firm, so network fees would be passed on to Doctolib, and ultimately its users in the healthcare sector.

Network usage fees would also undo the positive externalities of cloud services by discouraging their use. The cloud is based on the concept of shared infrastructure and computing resources. This not only creates economies of scale, it also plays a significant role in the fight against climate change. 

Maximising the utility of available resources – by using the same infrastructure to serve multiple cloud customers, instead of each having its own dedicated server in a basement – leads to major energy savings. Analysys Mason, for instance, found that a “typical company migrating to the cloud [will] achieve a 68-87% reduction in energy on computing, and also a similar reduction in carbon emissions.” Yet network fees would discourage this transition. 

And so, the impact of these usage fees would ripple right through Europe’s entire digital ecosystem, reaching far beyond their initial imposition on the handful of “Big Tech” firms that telcos keep mentioning when they try to sell this idea to EU lawmakers. The reality is that telcos’ demands for “fair share” payments would have a particularly detrimental impact on European organisations, and notably on SMEs.

EU lawmakers need to ensure that all stakeholders are heard in this debate, as the impact of network fees would be felt by everyone that relies on digital services, including cloud users. However, European start-ups, SMEs, gaming companies, and broadcasters seem to be largely ignored by the Commission’s ongoing consultation on the issue.

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.