The preliminary report of BEREC (Body of European Regulators for Electronic Communications), the main European body of telecommunications regulators, on Wednesday, October 12, rejected the arguments used by European operators to justify the call for European legislation to encourage a "fair contribution" by application and content providers (CAPs) to fund the expansion of networks.

It is also a shot across the bow to the European Commission's (EC) decision to launch a public consultation on the issue. The EC rejected this proposal in 2012, but has now agreed to deal with it. The first step on this new path is the consultation, which has not yet been scheduled.

BEREC assumes that the Internet has demonstrated its ability to adapt to changing conditions, such as increased traffic volume and changes in demand patterns. Therefore, there must be adequate justification for any measures that intervene in the market.

For the regulatory body, the "sending party network pays" (SPNP) model would provide operators (BEREC identifies them as ISPs) with the ability to exploit the monopoly on the terminal (the device), which could generate "significant" harm to the Internet ecosystem. Therefore, the SPNP model would require regulatory oversight and intervention.

In its report, BEREC refutes two arguments made by operators on the application of the "fair contribution" of CAPs: traffic causes and cost drivers.

Causes of traffic. The first is about the origin of traffic. ISPs refer that they have higher costs due to increased data traffic and the request for financial contribution is to pay for those higher costs. Since CAPs cause that higher traffic, they should make the payment, ISPs reason.

BEREC recalled that in 2012 it refuted that argument: "The ETNO (association of European operators) proposals do not seem to have taken into account the fact that the request for the data stream generally does not come from the CAP but from the retail Internet access provider's own customer. The customer "pulls" the content provided by the CAPs and the ISP gets revenue from it for it."

Despite the rebuttal, BEREC noted that CAPs can make a contribution to improving traffic efficiency in networks by optimizing the efficiency of the data and applications they provide.

Costs. In their November 2021 letter, the CEOs of large European ISPs stated that studies conducted for ETNO concluded that OTT-driven traffic will generate annual infrastructure costs for them of up to € 40 billion. Their conclusion is that an increase in traffic translates directly into higher costs.

In general, existing network capacity can be used to a certain extent without additional costs, and investments in network expansion are only needed when higher peak capacity is required. According to BEREC, these costs are very low compared to total network costs and, at the same time, upgrades involve a significant increase in capacity.

Looking at the cost of fixed access networks, BEREC said that while these are the segments that require significant investment, for the most part, they are not traffic sensitive and their costs are recovered from customer subscriptions over time.

In the case of mobile networks, he considered that increased traffic volumes do not directly lead to significant incremental costs compared to total network costs.

With respect to backbone networks, BEREC noted that additional off-peak traffic does not generate incremental costs, and if the volume of peak traffic were to increase such that existing capacity is no longer sufficient, it would indicate that routers and switches need to be upgraded.

While this is a one-time investment cost, such an upgrade generally results in an increase in capacity by a multiple of what the latest technologies would require. In this context, the cost of increasing backbone capacity can be considered very low, particularly when compared to the cost of building access networks and, therefore, to the total cost of the network.

Lastly, BEREC recalled that in 2012 it determined that the costs to increase the capacity of IP interconnection links are usually shared by CAPs and ISPs because it is mutually beneficial for both parties to increase interconnection links. And, in general terms, it noted that the absolute costs to increase interconnect capacity are very low.

GSMA. On the same day of publication of the preliminary BEREC report, the GSMA issued a statement reaffirming "the importance of a fair contribution to European infrastructure investment (...) The publication of BEREC does not provide a pathway for Europe to realistically meet the agreed Digital Decade targets."