Network usage fees, the idea that certain types of companies must pay Internet service providers (ISPs) for the ability to deliver their content to consumers, both harm consumers and disrupt the status quo that enabled the rapid spread of the global Internet. ISPs argue that these fees are necessary because the costs of delivering Internet services have unfairly increased for them. This is a lie. Basically, network usage fees are a ploy by the biggest ISPs to extract monopoly rents, kill competition and further strengthen their monopoly power.
The European Union (EU) is debating whether or not to adopt a network usage fee regime and will continue its discussions in early 2023. They need to understand how harmful these charges are and not succumb to ISP pressures to implement the regime. .
What is Network Usage Charges and the ISP Argument
The main argument of the largest ISPs is as follows: companies that create and/or deliver information and media online, called content and software providers (CAPs), provide their services through the physical infrastructure networks that make up the Internet. Think YouTube, Netflix and Disney+. ISPs who build the infrastructure (sometimes with public funds) claim to incur a cost to deliver the service, while CAPs simply use the network for free. Therefore, CAPs must pay ISPs to deliver these services, as CAPs offload the networks that ISPs have to build and pay to maintain. If CAPs want to use the network, they must pay a fee based on how much they use, hence the term network usage fee.
A special type of network usage fee that ISPs want is called “sender party network pays” (SPNP). To illustrate, when someone on the internet wants to watch a video, what they are doing is requesting that the video be delivered to them as data. CAPs that receive that request send that information to the person who made the request. That data has to go through the ISP network to get back to the person. Since CAPs are the “sender-party network” here, they have to pay the ISP for what they send. This is the basis of SPNP. Additionally, if CAPs data is to be sent through more than one ISP within the SPNP regime, it must charge all ISPs. Some SPNP models also require all ISPs to pay each other when they send traffic through each other’s networks. In this arrangement, the largest ISPs benefit because they already control the largest networks. Smaller and newer ISPs with less extensive networks are driven out of the market over time by such fees.
The ISP’s second argument is that CAPs have caused the increase in Internet traffic everywhere. CAPs like YouTube and Disney+ allegedly use infrastructure they don’t pay for to drive internet traffic around the world. From this framework, network usage fees are CAPs that will ultimately pay their “fair share” for network usage.
Ultimately, ISPs say the money will go toward building infrastructure and expanding the physical capabilities of the modern Internet.
How and Why the ISP Argument Doesn’t Completely Impose Reality
New research from Analysys Mason finally, it provides hard numbers showing why the ISPs’ arguments completely mischaracterize the relationship between CAPs and ISPs. CAPs also invest heavily in the physical infrastructure of the Internet. Their investment in networks saves ISPs billions of dollars every yearand the costs incurred by ISPs to deliver traffic have not increased dramatically despite the increase in traffic.
To begin with, CAPs are not free downloads. From 2011 to 2022, CAPs have collectively invested nearly $900 billion in the infrastructure that stores, transports and delivers their services. These investments are made with the aim of increasing the reliability and quality of their services globally, which in practice means ensuring that their services reach consumers faster with less latency. What this physically looks like is building transoceanic cables to carry data around the world, data centers to bring content closer to the consumer, and data caches to bring their services even closer. What this means in practice for consumers is faster and more reliable service, no matter where they are. From 2018 to 2021, CAPs cost about $120 billion per year. These investments only increase in response to consumer usage.
CAPs save ISPs between $5 billion and $6.4 billion annually. When CAPs bring their services closer to consumers, ISP networks do less work. Instead of bringing data thousands of miles away from YouTube’s headquarters in California to Seoul, South Korea, an ISP can access data storage that YouTube has located in Seoul, South Korea to deliver the same data. two miles. The cost difference between two miles and thousands of miles of data delivery between billions of content requests is what is saved and adds up to billions every year.
Although ISPs save from CAP investments, the cost to the ISP to operate the network is largely unrelated to the actual traffic that passes through the networks. In fact, the cost of traffic is only a fraction of the costs of ISPs. Traffic is not cost sensitive. One reason is that networks themselves are built to handle high volumes of traffic. As a chart in Analysys Mason’s report shows, the cost of global ISPs has remained largely stable despite the growing demand for internet traffic.
Another big reason is that as ISPs deploy more fiber, the cost of maintaining networks and delivering traffic decreases. Despite the rapid growth in usage each year, many reasons why costs have remained stable are due to fiber optics. As in the EFF has been written about extensively, fiber is not only cheaper to maintain and upgrade than legacy infrastructure, but has much higher speed and traffic capabilities than we can officially predict. As ISPs increasingly switch to fiber, networks will not only become cheaper to maintain, but they will also become increasingly sensitive to traffic demands. In other words, the future of the Internet with the right infrastructure is ever-increasing speed at lower costs (and prices paid by users).
Network Usage Fees Hurt Consumers
Network usage fees harm consumers and are a direct threat to net neutrality. The cost of network usage charges will be passed on to consumers through more expensive internet.
Net neutrality principles are directly threatened by network usage fees. If CAPs refuse to pay, ISPs can reduce the service speed according to the content requested by the user. ISPs may have the right to terminate CAPs’ ability to send content and services to consumers, even if consumers themselves request it. ISPs that own streaming services—streaming services that would otherwise be CAPs—can give their services an advantage over competitors by distorting what a consumer can and cannot watch. Net neutrality as a principle It’s about treating all traffic equally so that the consumer can decide how they want their experience to be. Network usage charges take that decision away from the consumer and give it to ISPs, allowing them to discriminate in controlling what you can and can’t see.
Network usage charges distort the market, so the largest ISP disproportionately benefits to the detriment of all consumers. Like the EFF wrote before, we need net neutrality and competition if we want to incentivize ISPs to do better. Without competition, ISPs can and do pay more for worse service. On the side of CAPs, they will pass on the cost of network usage charges to consumers, both in the form of significantly higher subscription fees and immaterially worse service. Here too, consumers will have to pay less.
Network Usage Rights and the European Union
The EU is debating grid charges and is set to renegotiate it in early 2023. Network usage fees were raised and rejected in 2012, but the issue has returned due to continued paid lobbying by the largest ISPs. . Fortunately, the EU telecoms regulator, the Body of European Regulators for Electronic Communications (BEREC), announced his initial report rejecting network usage fees and any similar market interference. Besides, small and medium sized ISPs in Europe realizing that network usage fees are not benefiting them, they came together to oppose this idea.
The outlook in the EU is currently optimistic, but we will not take the optimism for granted. We call on the EU to once again reject the adoption of network fees.