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Networks stretched by the streaming boom need to be upgraded, but who will pay, asks

Gareth Corfield

Britain is set to become a key battleground over net neutrality as telecoms companies square up for a fight with Big Tech over who should pay to upgrade the nation’s phone infrastructure.

Following an Ofcom consultation last year which hinted at an “overhaul” of the UK’S net neutrality rules, telecoms companies have been on manoeuvres to convince legislators here and in Brussels that new laws are needed to force tech companies to fund their network upgrades. Whether it’s the latest episode of House of the Dragon or the Rings of Power, behind the crystal-clear picture on your phone or tablet is an increasingly advanced and expensive series of computer networks.

Telcos, led on this side of the Atlantic by lobby group the European Telecommunications Network Operators’ Association (ETNO), say they cannot afford to keep investing in network infrastructure to deliver hi-resolution streaming video to tens of millions of people at once. But with the likes of Netflix booking profits of $5.1bn (£4.55bn) for last year, it’s clear to some where the money for future 5G rollouts could come from.

Joakim Reiter, Vodafone’s chief external and corporate affairs officer, is blunt about who could solve the funding problem: over-the-top players (OTTS), the industry name for streaming services.

“A small number of leading OTTS now account for over 55pc of all network traffic,” says Reiter. “Just looking at the picture today, traffic driven by OTTS generates costs of up to €40bn (£35bn) per year for EU telcos.

“This drives an enormous amount of investments in pure capacity expansion, scarce capital that could have, for example, been used for rural coverage.”

Joining Vodafone in its demands for Big Tech to pay for content delivery is BT, whose chief executive Philip Jansen signed an open letter last month with other ETNO members’ bosses calling on Brussels to legislate and force Big Tech to pay telcos for streaming their content to end customers.

“For this to happen, and to be sustainable over time, we believe that the largest traffic generators should make a fair contribution to the sizeable costs they currently impose on European networks,” the letter says.

Reiter cites figures from consultants at Frontier Economics to estimate how much a typical subscriber’s data usage costs telcos to provide. Analysts came up with an annual average figure of £35-£41 per customer.

For a mobile phone subscriber on a two-year iphone 14 contract, OTT data costs might make up 10pc of the total bill. For consumers on a budget smartphone deal, that data cost might make up a third of their monthly bills. Rising capital expenditures are a fact of life for mobile network operators. Vodafone Group has spent €23.6bn (£20.7bn) on network improvements in Britain and Europe over the past three years, with BT spending topping £12bn over the same period and Three splashing out £784m last year alone.

Telco bosses suggest sustaining this level of spending is only possible with new laws to force telcos and tech companies to negotiate over prices for transmitting and carrying web traffic.

One figure bandied around is 50 million: the threshold for the number of users of an internet service that ought to trigger its inclusion in the new market plans. Whether that includes the likes of Wordpress (455m users), Tiktok (about 1.5 billion) or even arts and crafts photo website Pinterest (432m) isn’t yet clear. It isn’t just these household names either.

Other companies with a dog in this fight are content delivery networks (CDNS), internet businesses whose networks are pivotal in streaming shows such as Game of Thrones or even the Six Nations to consumers’ devices. When asked if CDNS such as Akamai, Cloudflare or Lumen Technologies could be caught in his industry’s plans, one mobile network engineering executive pauses.

“That’s a tricky question,” he eventually says. “But if you think about their business model, they are about taking the pain away for large content providers to distribute the content globally, right? And often they charge based on volume.” In his off-the-cuff answer, one of the CDNS’ business models is a potential solution for cash-hungry telcos.

Tempers have frayed in Britain over these proposals. ITV has branded the plans as “akin to gas companies seeking to charge hob manufacturers for the increased demand for gas that they create”. This colourful description chimes with the tech companies. Google’s top European executive Matt Brittin said: “All this [streaming and web traffic] amounts to an economic surplus which is distributed to all the internet users and businesses across Europe,” asserting that Google activity generates “€420bn a year in value” for Britons and EU citizens alike. “Google traffic” includes small and medium businesses, he points out: many Android app developers distribute their programs through Google’s Play Store. The same holds true for Apple’s App Store. “Introducing a ‘sender pays’ principle is not a new idea,” continues Brittin, “and would upend many of the principles of the open internet.” One of Big Tech’s Brussels lobby groups, the Computer and Communications Industry Association (CCIA), is leading the charge against the plans on this side of the Atlantic. Amazon is one of its members, along with Apple, Facebook, Google and others. CCIA vice-president Christian Borggreen says: “Operators are already being paid by their customers. It now seems like telcos want to double-dip in an attempt to make online content and service providers pay for internet traffic in spite of Europe’s long standing commitment to net neutrality.” Those concerns were echoed by Adrian Kennard, director of small British internet service provider Andrews & Arnold. Far from seeing a windfall from the big operators’ plans if they become reality, Kennard worries that altnets – small and micro-scale operators – such as his will find themselves tied up in bureaucracy and at the mercy of middlemen.

“People are watching streaming television all the time anyway,” he shrugs. “If they happen to be watching some streaming sports event instead of watching some rerun of the X Files, it really doesn’t make a huge difference to us in terms of bandwidth anymore.” For now Ofcom is resting on its laurels, perhaps preoccupied as it prepares to assume its upcoming Online Safety Bill powers. So far in Britain, there are no firm plans to pass new laws forcing streaming providers to pay telecoms companies for the privilege of sending their traffic to consumers.

But if the telcos get their way, you might see a few more pounds added to your favourite streaming site’s subscriptions.

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