The future of the Internet is happening, these days more than ever, through the Mobile World Congress in Barcelona, because decisions are being made that will condition the future of the business that telecommunications networks support, and the distribution of the benefits that are generated, and in which everyone wants to have a share.
It has become clear this Tuesday in the keynote by Greg Peters, recently appointed co-CEO of Netflix after the step back from Reed Hastings, who has not missed the opportunity to respond to the large telecommunications companies. Telefónica, Vodafone or Orange have raised their tone in the last week to demand that internet giants — such as Netflix or Google — assume part of the financing of the new networks for the use they make of them.
A “fairer” distribution, in the words of Pallete, which is no longer just a mere complaint from the telecommunications operators that until now had been left out of the flow of money they saw circulating. The European Commission has entered fully into the debate — which threatens to become the great technological war of the year — by opening a public consultation with the aim of evaluating whether the large technological companies — mostly American — should somehow pay for the infrastructures that are used, such as fiber optics or the new generations of 5G and 6G mobile networks.
“I know some are concerned that this consumer demand will lead to unsustainable traffic growth. These concerns are not new. I remember having similar conversations with our partners and regulators here in Europe ten years ago. However, the last decade has demonstrated, and telecommunications leaders have recently reaffirmed, that the growing use of the Internet is a tremendous opportunity, reflecting the growing demand for the services we all provide”, Peters began his speech.
The operators point to the high cost of infrastructure, but Peters recalls that they invest in their own way in the ecosystem. “Netflix has invested more than $60 billion in content in the last five years. That equates to roughly 50% of our total revenue”. “It’s our role in creating a virtuous circle: better and more varied content , which makes more people willing to pay for better broadband services”, he stressed.
Another topic that has raised concerns during Peters’ presentation has been the crusade against shared accounts. The company seems to have faith that technological solvency is one of the weapons that manages to neutralize the poor reception it has received from users. “Consumers want great movies, series and video games, and are willing to pay for high-quality content on the Internet to enjoy the content they love”, an investment in content and technology that operators have also taken advantage of.
Netflix landed in Spain offering subscriptions with access to 4K content when there were almost no televisions in homes that could take advantage of this technology, and the platform claims that they are a fundamental part of progress. “We have invested in production infrastructure, such as our ten state-of-the-art sound stages at our European production center in Madrid. That is why we have invested in technological innovation, such as the world’s first cloud-based remote editing system. With studios from physical and connected editions, strategically located next to the soundstages”.
Peters has explicitly referred to Alex Pina, the Spanish mind behind La Casa de Papel, whose latest production — Berlin — is the spearhead of the technological vanguard on Netflix, thanks to a high-tech system that allows editing in the cloud with high-resolution, low-latency shots between editors located in various parts of the world.
After years of conflict, months of rumors and weeks of expectations, the European Commission announced this Thursday a “consultation” that will last for 12 weeks — until May 19 — with which the Community Executive hopes to establish its position on the use that make the networks the big technological multinationals.
There is a deep sea in the matter. For a long time, operators such as Telefónica have considered that technology companies such as Google, Microsoft or Netflix should pay part of the cost of building and operating telecommunications infrastructures. The telcos understand that the technology companies are copying them, by requiring a high bandwidth.
Technological multinationals, as might be expected, categorically reject this idea, understanding that the cost of these infrastructures is already borne by the users. On the other hand, public institutions, both in Spain and in Europe, have evaded the issue until now. The European Commissioner for the Internal Market, Thierry Breton, broke that silence on Thursday. He has done it in anticipation of the Mobile World Congress, which begins this weekend in Barcelona and brings together the best of the 2 sectors.
“We have to think about the necessary infrastructures, take into account technological disruptions to make investments in the most efficient way”, stressed the commissioner in an appearance in which he also recalled how the rise in costs or the geopolitical context add stress to the development of these infrastructures. “All of that also plays a role”. The European responsible has not been wet for long.
The objective of the consultation is “to unite points of view on technological changes and the market situation, and how this could affect the electronic communications sector”, Brussels exposes through a statement. “In particular, it seeks to identify the types of infrastructures needed in Europe to further transformative technological developments”.
The consultation also wants to gather the opinion of those who may be interested or affected by the legislative action that may arise from this public hearing. Some of the questions raised by this consultation, for example, are how to ensure that the necessary investments to update these infrastructures are mobilized as quickly as possible, or how to move towards a single market with affordable connections for users and to gradually close the gap in digital skills.
What happens once the public hearing period is over is anyone’s guess. The Commission could propose legislative updates — which would require the subsequent intervention of the European Parliament and the Council of the European Union — to end up forcing big technology companies to pay for the enormous use they make of the networks.
However, if an idea like that prospers, it is most likely that the community legislature will end before a consensus on the issue has been reached. Breton has been asked about this very thing, and although he has recognized that time is one of the “greatest enemies”, he has claimed that it would be possible to carry out a regulation.
The news of this public consultation has already had reactions. A technology lobby, CCIA Europe, has regretted that the term “fair contribution” appears in the questionnaire for the public hearing, which from this platform they consider a “false” premise on the part of the telecommunications companies.
“However, most of the questions can only be answered by technology companies or operators, to the exclusion of other stakeholders. Therefore, we urge the Commission to adopt a more inclusive approach and give similar weight to the concerns that have been raised consumer groups, civic organizations, etc”.
A new directive to streamline procedures and save costs in the deployment of networks Commissioner Breton has presented the prior consultation within the framework of a new batch of initiatives related to the development of networks in the Union. Among these measures there is also a new directive, which replaces the 2014 broadband cost reduction directive, and which responds to the “urgent need” to develop infrastructure more quickly.
This urgency responds to the development of key sectors and technologies such as the cloud, artificial intelligence, virtual reality or the metaverse in which “European citizens will enjoy their digital rights”.
The new rule, dubbed the Gigabit Infrastructure Law, will seek to overcome the “challenge that is the slow and costly development of the physical infrastructure that supports advanced Gigabit networks”. “Among other issues, it will digitize and simplify bureaucratic procedures”, and will favor the coordination of the operators when undertaking works.
These works — you have to dig to be able to bury cables — account in many cases for 70% of the costs of telecommunications companies when building new networks.
“We’ve spent more than $1 billion on Open Connect, our own content delivery network that we offer free to Internet service providers. So when our subscribers hit the play button, instead of streaming the movie or TV program from the other end of the world, they do it from around the corner, which increases the efficiency of the operators and guarantees consumers a high quality experience without delays”, explained Peters.
The Netflix co-CEO has also highlighted the platform’s advances in file compression, which allows series to travel with the same quality while taking up less space (and bandwidth) in homes. “Between 2015 and 2020, we have been able to cut our bit rates in half. This is all in addition to the significant efficiency gains that the telecom industry has been able to achieve on its own networks”.
“According to estimates, traffic has increased by 30% annually. It turns out that the Internet is very popular. And Internet providers have effectively managed this increase in consumption and have kept their costs stable”, Peters stressed, continuing to say that “One of the reasons the Internet is so popular is that consumers are free to choose what content they want to see and when they want to see it. We are harnessing the power of the Internet to break down the barriers between storytellers and fans around the world”, has highlighted the director of Netflix.
Netflix knows that the absence of restrictions on the free circulation of content on the Internet plays a fundamental role in its kitchen of global phenomena. “Less barriers means more global phenomena like The Squid Game”. The platform boasts a successful original production model that it hopes encourages other agents to invest in global phenomena to which users around the world have access, whether on Netflix, France Television, Globo, Telecinco, the BBC, Disney or Viaplay , indicated the executive himself. A question of money? Netflix points to its operating margin, much lower than that of British Telecom or Deutsche Telekom.
Netflix is aware that going hand in hand with telecommunications companies is key in an increasingly saturated environment. The advantages of consumer-side aggregation are obvious. “We are business partners with more than 160 telecommunications companies around the world, many of which add Netflix directly to their commercial offerings. Consumers love these offers that perfectly showcase the value that can be created through this collaboration”.
“The tax would have an adverse effect, it would reduce investment in content, it would hurt the creative community, it would reduce the attractiveness of higher-priced broadband packages and, ultimately, it would hurt consumers”, Peters said during his speech at the Mobile World Congress. “Internet providers claim that these taxes will only apply to Netflix. But this will inevitably change over time, as incumbents move from linear to streaming”, referring to traditional TV channels.
“Broadband customers, who are driving this increased usage, already pay for network development through their monthly fees. Require entertainment companies — both streaming and traditional TV — to pay more therefore it would mean that Internet providers would be charging twice for the same infrastructure”, Peters said.
The director of Netflix has also highlighted that the European Consumer Organization (BEUC) has stated that there are no indications that this possible new rate “will affect consumers in the form of lower prices or better infrastructures”. In addition, Peters has stressed that the operating margins of Netflix, which is closely watched by Wall Street, are significantly lower than those of British Telecom or Deutsche Telekom. “We could argue that network operators should compensate entertainment companies for the cost of our content, exactly as it was in the old pay-TV model. But we’re not asking for that”.
“I think it’s best for entertainment companies and operators to focus on what each does best: creating a rising tide that can lift all ships. For Netflix, that means continuing to invest in and improve the quality and variety of the stories we offer”.
“Over the next decade, we will see competition for people’s attention and time increase. The road ahead will be steep”, Peters said.
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