COVID-19 calls into question European internet regulation

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COVID-19 calls into question European internet regulation

The COVID-19 pandemic has confined one third of humanity and has paralyzed the world’s major powers. The difficulty of keeping track of the disease and its rapid expansion throughout the world shows the hyperconnected society that we have built in the last decades.

The Internet, the backbone of this society, is today the essential buffer for the fall in economic and social activity caused by the health crisis. With the exponential increase in the use of the network, the weaknesses in capacity, organization and cost-benefit sharing of the internet generated by regulation in the European Union have come to light.

The regulation of internet providers

Investment in the construction and reinforcement of digital infrastructure has historically been in the hands of internet service providers (see Figure 1). The need for broadband market infrastructures made these agents monopolists of network access in each of their countries. For this reason, European regulation focused on them and on reducing their power in two ways:

  • Encouraged competition between European operators.
  • Channeling investment.

As a result, the number of operators with their own network has grown in the last 25 years, access prices for end users have fallen and packaged telecommunications services (fixed, mobile, internet and television) have gained weight in the market.

But regulation also has a negative side: it has weakened these companies against the large content providers that came from abroad. European anti-competition regulation was not applied to these nor do they participate to a large extent in EU taxation.


The neutrality debate

On the other hand, the internet (data traffic on the network) has been regulated to remain an open network in the midst of a controversial debate. The regulation known as network neutrality – which has not been so neutral in the end – imposes financial non-differentiation between large companies such as Amazon or Google and small businesses. This means that payments between content and internet providers are not allowed, nor is qualitative differentiation (greater or lesser need for band).

The (dis) incentives for investment and the problems of congestion that this entails have been the economic arguments used both against and in favor of maintaining this neutrality.

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However, the economic debate about whether or not to maintain network neutrality has not gone hand in hand with European legal regulation. The regulation on net neutrality started in 2010 when Tim Wu advocated the need for regulation that would guarantee the principle of non-exclusion on the internet.

In 2015 it was approved in the USA. USA the obligation of net neutrality, a widely applauded decision among the Internet Association (whose prominent partners are Google, Amazon and Facebook). But in early 2018, this rule was repealed.

In the EU, following the first steps of the USA. In the USA, an agency was created in 2016 to ensure network neutrality. It is still in force today. Only certain exceptions are allowed, such as the case of. According to this practice, internet providers can reach an agreement with a content provider so that their use does not affect the amount of data consumed by the user, for example Spotify with the Vodafone or Netflix package with Movistar.

Due to these regulations, the internet market has been restructured:

  • Competition between internet providers (mostly European companies) has increased.
  • Net neutrality has meant that large content providers (mostly non-European companies) have come to have a much greater weight than internet providers. Alphabet (Google), Amazon, Netflix and Facebook They have come to lead the most influential and strongest companies on the internet (see Figure 2).
COVID-19 calls into question European internet regulation 1

Figure 2. Operating income of the eight strongest companies on the internet. ORBIS, Author provided

Figure 2. Operating income of the eight strongest companies on the internet.
ORBIS, Author provided

European strategy for full coverage and 5G

New generation networks (ultrafast broadband networks) play a strategic role in the economy. Almost a decade ago, the European Commission set the goal that “by 2020, all Europeans will have accessed speeds greater than 30 Mbps and 50% more European households will have access to ultra-fast speed, that is, greater than 100 Mbps.

The EC was thus promoting the expansion of information highways through financial and regulatory guidelines that help to complete the single market for telecommunications and unify the connection of the continent. But the fragmentation of the pan-European political framework is a drag on its development.

On average, the percentage of European households with access to fast broadband increased, from 48% in 2011 to 80% in June 2017. However, this general increase in fast broadband coverage hides a significant discrepancy between areas. urban and rural and between different EU countries.

Although it has been improving, the initial objectives were not achieved. In September 2016, the Commission established the so-called Gigabit Society for 2025 where more ambitious strategic objectives were set than those established in the Digital Agenda for 2020.

The weak points of the European internet

For the past few weeks we have watched these information highways go from being strategic to essential. The assimilation of digital culture is proving to be solid, in fact there has been a quick and flexible adaptation to telework. However, this rapid digital turnaround hides some holes such as the rural-urban digital divide and the problems of network congestion.

Content provider companies are the most affected by congestion problems. In recent years Alphabet and Amazon They have invested in the development of packet compression technologies that today may be the key for our networks to withstand the pressure of the pandemic.

These content providers have made cash benefiting all these years from a behavior (take advantage of the infrastructure of internet providers without paying their costs) in the context of network neutrality. Meanwhile, internet providers, European national operators and main investors in European networks participate in European taxation while being affected by competition obligations and neutrality legislation.

The pandemic has hit us like this, with a strong digital economy but with some unsolvable leaks in the short term. There are many questions about how we will solve this underinvestment in the network in a moment of extreme urgency, but the main one is: How should content providers participate in the costs of general infrastructure and in reducing congestion?

The answer is complex but urgent, since connectivity is no longer one more item on the political agenda, it is a strategic and essential necessity.The Conversation

Irene Comeig Ramírez, Professor at the University of the ERI-CES and the Department of Business Finance of the University of Valencia, and Lucía Desamparados Pinar Garcia, PhD student in Attraction of Talent in Economic Analysis,

This article was originally published in The Conversation. Read the original.

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