“Telcos vs. Platforms: Who Should Fund Internet Infrastructure?” – platform of Pierre Bentata

French telecom operators are stepping up their lobbying campaign to fund their investments from digital content producers– listen to GAFAM. It was already one of their 15 proposals for the five-year term 2022-2027. Now, it has turned into a detailed project that specifies the contribution modalities of each digital platform.

To be honest, this campaign is not the last. For a decade, telecommunications The French explain that their infrastructure costs are too high and that it is necessary and legitimate for digital platforms to get their hands dirty.

From an economic point of view, the very duration of this campaign raises questions. An industry that can anticipate the challenges it will face ten years from now is in a comfortable position. And if during this period nothing has changed, it is either that the companies have shown themselves unable to meet the needs, however predictable, or that the difficulties are not. Let’s continue.

Maintenance. What do operators offer? Seeing that the traffic is mainly oriented towards the main digital platforms and considering that in order to satisfy their users, they are obliged to invest and ensure the maintenance of the infrastructures, the access providers consider that they actually finance the activity of the content producers online. And this seems illegal to them.

If consumers are willing to pay for a highway service, it is not for the value of the road, but because it is only a means of reaching a destination that has value in the eyes of drivers.

Is it really so? Of course not, unless you consider that a company that provides highway access should be paid by all the shops and businesses that serve its highways. As if the value of the goods offered by these shops and businesses depended directly on accessibility. While in reality it is the opposite! If consumers are willing to pay for a highway service, it is not for the value of the road, but because it is only a means of reaching a destination that has value in the eyes of drivers.

Asking content producers to fund the costs of access providers is as absurd as asking appliance manufacturers to pay EDF every time a household uses a juicer or a toaster. In both cases, the markets are confused and we forget that the consumer has already paid for two services: the product and network access.

Moreover, if we consider, as Internet service providers do, that telecommunications and GAFAMs are in complementary markets, then telecommunications must donate a portion of their profits to GAFAM without which no one would agree to pay for an online subscription.

Subsidies. But there is something even more strange about the approach of access providers. The latter claim that they do not have the means to finance their investments. However, they are already paid for by their subscribers! Not to mention the massive subsidies they have benefited from, especially under the Recovery and Resilience Facility program – 150 billion euros alike. Therefore, if these providers are unable to finance their infrastructure, they, like any company in such a situation, can increase the price of their subscriptions.

Users must pay to access the content they want, and providers of that content must pay to find their users. The position thus provides a “situational rent” for the telephone companies, where the more the value created by the content producers increases, the more the suppliers can get rich and threaten to block access.

Why not? The reason is clear. Fearing that new entrants will compete with them and take their market share, thus revealing that the current suppliers are inefficient. Under these conditions, requiring participation from content producers allows them to maintain stable prices while protecting against potential competition. They win on all counts. This strategy, which goes against all economic principles, is only possible because of the special position that access providers occupy.

Being the gatekeepers of Internet access, they benefit from what in economics is called “a bastion position”: from where they are, they are able to blackmail everything in the ecosystem. Users must pay to access the content they want, and providers of that content must pay to find their users. The position therefore provides a “situational rent” for him telecommunicationswhereby the more the value created by content producers increases, the more suppliers can get rich and threaten to block access.

This “situational rent” poses a great risk to competition and market dynamics. That is why economists are always looking for ways to regulate companies that benefit from it. With the last presentation of notion of “gatekeeper” in European regulations, authorities now have a tool to limit her behavior. Perhaps it would be time to use it against the real gatekeepers of the Internet, that is, access providers.

Rinzen’s founder, Pierre Bentata, is an economist, essayist and lecturer.

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