Fair share: what stage is the European legislative proposal on the internet tax at?

Innocenzo Genna
Department for Digital Transformation, Rome
inno@innogenna.it

The European ‘fair share’^[1] debate is certainly one of the ‘telecommunications’ hypes of 2023, and so far has created an incredible mass of work for consultants, lobbyists and conference organisers. This subject has become an absolute priority for the largest European telcos, assuming a very important role in the digital agenda of the European Commission lead by commissioner Thierry Breton, former Chief Executive Officer of Orange, the French telecom incumbent. However, despite so much attention and involvement, it is difficult to predict how long this debate will last and whether the expectations of the proponents will be ever met.

Fair share has not attracted the expected consensus

The fact is, that after more than a year of discussions, position papers and events on this subject, the outcome certainly cannot be said to be positive. The front of supporters has not widened at all, while, instead, that of sceptics has grown, giving rise to a variegated grouping hostile to the ‘fair share’ which, as we will see below, includes much more than the ‘over-the-tops’ (OTTs)^[2] and their traditional sympathisers. In this grey scenario, only the position of the European Parliament seems to be an exception, since 15 June 2023, when the assembly inserted a sentence in favour of the ‘fair share’ in a document which nonetheless dealt far from it (the Annual Competition Report).^[3] Moreover, the favourable ‘fair share’ sentence was mitigated by the reference to competition and net neutrality. However, it would be rash to say that the European Parliament has already taken sides in the ongoing debate: it is more reasonable instead to assume that the majority of the members have not sufficiently evaluated the extemporaneous paragraph and that the ‘fair share’ match within the European assembly has yet to start, if it will ever start.

Fair share is even opposed by the historical opponents of Big Tech

It is significant that many stakeholders and institutions, who normally would not have an interest in defending the Big Tech, have taken sides against the ‘fair share’ initiative, or at least consider it a problematic or hasty issue. Among these it is worth mentioning numerous European governments (with Austria, Denmark, Germany, Italy and the Netherlands among the most hostile), the European telecom agency Berec, commercial television, the internet technical community (with various associations, including the Internet Society and RIPE Network Coordination Centre), even telecom organisations (such as MVNO Europe, EuroIX, as well as various organisations of alternative operators), civil rights associations and consumers. While these entities normally criticise Google among others for various reasons (digital sovereignty, privacy, consumer rights, competition), the fact that they have instead sided against the ‘fair share’ theory, and indirectly in favour of the large OTTs, is significant. These ’fair share’ opponents do not seem interested in positioning themselves for or against telcos or Big Tech; rather, they appear worried about the potential negative consequences that could derive from improvident and useless regulatory interventions.

The strong point of fair share: Commissioner Breton

In other words, not only did the ‘fair share’ debate fail so far but it even risks becoming more complicated as the voices of those who ask for a more complete analysis of its assumptions will prevail. However, all this does not seem to have affected the confidence of the proponents, who probably rely heavily on the engagement of Commissioner Breton, who has been very much in favor of the ‘fair share’ race since the very beginning. Breton’s activism is the true strength of the ‘fair share’, but is also a source of embarrassment, because both his professional provenance (Orange, one of the telcos most engaged in the debate) and his impromptu public outings^[4] in favour of the initiative, through social media or interviews, have somewhat created perplexities.

Analogies with the copyright directive

The confident attitude of ‘fair share’ supporters is also strengthened by traditional press supporting this regulatory intervention, although it is normally reported in a superficial way, as if it were a sort of wrestling between large techs and small telecom operators. This Manichean simplification (‘Google & Co use our networks!’) reflects a debate equally significant to publishers, namely, how to blame online platforms for the difficulties of adaptation to the internet of part of the publishing sector (‘Google & Co use our contents!’). In fact, this internet tax reminds the ‘link tax’^[5] provided for in Article 15 of Directive 2019/790 on Copyright in the Digital Single Market, according to which online platforms must pay a fee to publishers to remunerate them for the use (even simple indexing) of simple extracts of journalistic content. The dynamics of the debate show similarities between both fields, particularly in the fact that the subject who should pay (the OTT) considers the heavy tax unjust as the benefits provided by the platforms would prevail over the hypothetical use of the rights of the publishers. Similarly, in the case of copyright, the request for fair compensation from publishers is countered by the argument of the OTTs according to which, their platforms help distribute journalistic content, without any free-riding; in the case of ‘fair share’, the OTTs counter the request for an Internet tax by the telcos that it is precisely their services that promote the take-up of broadband networks, and therefore help the investments of the telcos.

It is therefore reasonable to assume that the proponents of the ‘fair share’ were inspired precisely by the recent Directive on copyright when shaping the functioning of a sort of internet tax, however, they underestimated its impact: while the case of online news is an economically insignificant segment of the digital sector (although relevant from the point of view of pluralism), the ‘fair share’ proposal risks disrupting the functioning of the digital networks.

The role of the Telecom Act

In any case, the day of the redde rationem is approaching. In order to materialise his project, Commissioner Breton is expected to file a legislative proposal as soon as possible, as the mandate of this Commission is about to expire: the European elections are scheduled for June 2024 and, according to the blank semester rule, there is a final deadline to file the last legislative proposals. Due to this limited timing, Breton informally announced (through a simple interview  with a national newspaper)^[6] a new legislative initiative, called the ‘Telecom Act’, to be presented by the end of the 2023, therefore almost at the photo finish. According to Breton’s announcement, the proposal intends to set up a new European industrial policy for telecoms aimed at a new structural and regulatory framework. The ‘fair share’ is not explicitly mentioned yet, but the suspicion is that it will enter into it, perhaps in a non-glamorous way, for example, in a boring and anonymous chapter dedicated to interconnection. The magic trick could be to set a mere clause in principle, then leaving the actual implementation of the Internet tax to the Commission itself on the basis of its secondary powers (delegated or implementing acts), which the Breton offices could adopt without the ordinary control of Council and Parliament. Such Machiavellianism looks unavoidable unless Breton manages to reverse the negative front that emerged in the Telecom Council of 2 June 2023 in Luxembourg, during which at least 19 European countries proved to be against, or at least perplexed, about the ‘fair share’ theory.^[7]

In short, it is legitimate to suspect that the envisaged Telecom Act could instrumentally serve to get the ‘fair share’ made into law in a discrete form, by confusing it with other more or less persuasive proposals to be used as bargaining chips with the internet tax: the everlasting single market for telecom, more aids to research, the pan-European operators, etc. Carrot and stick in short.

Need for further analysis and opportunities to be seized, from the use of Codec software to edge computing

Despite Breton’s motivations, we now know enough about the ‘fair share’ to suggest prudence instead. The ‘fair share’ proposal is highly controversial as the main assumptions on which it is based appear questionable and contradictory as soon as one detaches from political slogans such as, for example: the so-called ‘crisis’ of telecoms; the ‘use’ of the networks by the OTTs; the legitimacy of a further remuneration of the networks to be paid by the OTTs; the pure marginal costs due to the increase in traffic; the actual rate of filling of the networks; the actual situation of investments in fibre or 5G in Europe; the precise use of the proceeds of the Internet tax; and finally, the impact on competition and net neutrality.

There are also some issues that should be further analysed as they could benefit the market much more than a regulated subsidy. For example, it would be necessary to evaluate how to promote or even impose more efficient codec software than the current ones, in order to reduce the weight of internet traffic in the transport networks and lighten the costs of the telcos. Furthermore, rather than promoting antagonism between the players in the sector, it would be more appropriate to encourage them to cooperate in investments, for example, by promoting edge computing from which both the OTT and telco sides could derive both gains and savings. All aspects that neutral spectators of the debate consider worthy of further analysis, and a reason not to speed up such a delicate and impactful legislative reform.

Notes

[1]     See https://radiobruxelleslibera.com/2023/01/09/fair-share-the-definitive-guide.

[2]     An over-the-top (OTT) media service is a media service offered directly to viewers via the Internet.

[3]     See www.europarl.europa.eu/doceo/document/TA-9-2023-0227_EN.html.

[4]     See https://twitter.com/ThierryBreton/status/1585553517456007168.

[5]     See https://radiobruxelleslibera.com/2019/01/31/the-status-of-the-european-copyright-reform-and-the-impact-on-publishers.

[6]     See www.lesechos.fr/tech-medias/hightech/thierry-breton-la-commission-soutient-les-etats-membres-qui-bannissent-huawei-1952702.

[7]     See www.reuters.com/business/media-telecom/majority-eu-countries-against-network-fee-levy-big-tech-sources-say-2023-06-02.