Fair Share: A Look at Current Debates in the Region and Worldwide

20/05/2024

By Miguel Ignacio Estrada, Strategic Relations Manager at LACNIC

As a continuation of our previous panel in Fortaleza, where we explored the viewpoints of different stakeholders on “Fair Share” or “Fair Contribution” proposals, LACNIC 41 served as  an update on the status of these debates in our region and around the world. Therefore, the panel included the participation of Alessandro Molon, Executive Director of Aliança pela Internet Aberta, (participating virtually), Fernando Borjón, Senior Advisor for Latin America at Access Partnership, Rodney Taylor, Secretary General of the Caribbean Telecommunications Union (CTU), Alejandro Adamowicz,  Regional Technology and Strategic Engagement Director LATAM at GSMA (participating virtually), and Basilio Rodriguez Perez, President of LAC-ISP.

A brief overview of the situation suggests that in 2023, ETNO called on European Union legislators to develop legislation aimed at “protecting the digital future,” followed by a similar appeal by the GSMA.

Also, in 2023, the European Commission conducted an exploratory consultation on the future of connectivity within the sector and its infrastructure and Fair Share was one of the central topics of discussion. In October of that year, the European Commission published the results of the consultation, emphasizing the need for “reliable and resilient connectivity infrastructure.” However, it did not reach a conclusive decision regarding Fair Share. In February 2024, there was a consultation held regarding “new initiatives for tomorrow’s digital infrastructures” that will remain open until June 30, 2024.

In our region, GSMA Latin America called for action in February 2024 to “ensure the development of the Internet and the digital future of Latin America and the Caribbean” considering that more than 230 million Latin Americans and 22.8 million Caribbean people remain unconnected due to accessibility gaps. The call is to enable flexible Fair Share schemes in line with other regions and international organizations. Specifically in the Caribbean, a group of operators identified as “C9” made a similar call.

During the panel, Fernando Borjón explained that the proposal originates from Europe, where there is a goal set for 2030: ensuring that all populations have 5G coverage, households have access to gigabit-per-second speeds, 75% of businesses use cloud services, and 80% of individuals are digitally literate. “The aim is to contribute to the improvement of network performance, as operators have seen their margins significantly reduced and want to meet the digital agenda. Additionally, it is essential to consider that they are faced with high spectrum prices, which generates financial pressures.”

In this context, the suggestion is that platforms pay for the traffic service that operators offer and contribute to the investment required for connectivity infrastructure. “Let’s remember that platforms are already playing a role in network investment through cloud services, data management, data centers, and submarine cables. Nonetheless, their aim is to ensure a direct contribution specifically to their operations,” he emphasized.

Alejandro Adamowicz referred to the business challenges from the operators’ point of view. As he explained, they face a traffic growth rate of 23% on average in Latin America, compared to 15% in more developed countries. “These profit margins create a need for improved service quality. It is worth noting that operators are subject to regulatory standards regarding service quality, leading to CAPEX comprising 18% of revenues, with margins potentially hovering around 30%. Operators face a challenging situation as revenues remain stagnant, growing at just 1% in real terms. Despite being a trillion-dollar industry, it contributes $560 billion in taxes and fees annually, excluding spectrum costs.”

Regarding Latin America’s goals, he highlighted the aim to bring user traffic from 7 gigabits in 2023 to 32 gigabits by 2030.“In Latin America, 74% of traffic is video and 80% is concentrated in six highly profitable technology platforms with remarkable market capitalization,” he mentioned.

Finally, he emphasized the importance of public policies that seek to maintain service quality and close the usage gap, which currently stands at around 30% in the region. “The connectivity gap stands at 4%, showing that coverage efforts have been successful. The challenge now lies in meeting the increasing demand for data,” he stated. “The model has evolved significantly over the past decade due to the explosion of video traffic, yet the regulations are still based on standards from 1999. This is why operators are now calling for a fair contribution from network users through some form of agreement that ensure no prejudice or discrimination based on the type of traffic or user.”

Alessandro Molon emphasized that imposing additional fees for the same service lacks valid justification and, conversely, poses risks to the digital ecosystem. He noted that “even telecommunications companies benefit from more consumers willing to pay for access to online content and services.” He also highlighted other risks associated with Fair Share schemes, such as potential harm to net neutrality, competition, and the competitiveness of thousands of small and medium Internet providers.

From his perspective, those who provide content availability services on the network actually stimulate the growth of telecommunications companies.  He emphasized, “This relationship should not be perceived as competition but as a collaboration between both parties.”

Rodney Taylor commented that in the Caribbean region, there is a common challenge: the need to invest in network expansion, particularly in small states, due to the high cost of infrastructure. “The operators are requesting easier conversations with major tech companies. We started these discussions in February last year, and over a three-month period, we agreed to formulate a set of recommendations for the region’s policymakers.”

The conversations focused on addressing the issue from a business perspective (i.e., establishing specific figures for contributions, identifying the factors that would shape regulations, and detailing how funds could be used for network expansion, among other technical matters.  “It is important to note that there was no consensus reached during these discussions,” Rodney clarified, and added: “Operators stated that resolving the discussion was not only a technical matter, as it involved making a financial contribution while the OTTs (Over-the-Top services) refused to discuss any financial compensation or regulation, choosing instead to focus on technical solutions.”

The outcome of the negotiations was a commitment to continue the discussion and a summary of considerations to the government. Additionally, a discussion group was formed, including the Caribbean Competition Committee, as “operators strongly argue that this represents a market discrepancy,” he clarified.

Basilio Rodriguez Perez remarked that the Fair Share debate is “an old one.” “Today, we have Content Delivery Networks (CDNs) and Internet Exchange Points (IXPs). The idea that content is straining network usage is false because, nowadays, almost everyone accesses the Internet via a mobile phone. However, 85% of the time people use a mobile phone, they are connected to a Wi-Fi network, which is a fixed network with optical fiber. Only 15% of the time is spent using the mobile network while on the move.

As he explained, the Internet has changed, and all content is on the edge.“About 80% of the traffic comes from IXPs, including streaming services like Netflix, YouTube, and video consumption in general. The last mile to reach the customer is already on fiber optic, so there is no pressure or need for 5G, nor for networks to receive money from content providers.”

He also discussed how Europe’s objectives “significantly differ from those in Latin America” and pointed out that if a network charging fee is implemented in the region, “the funds will not be directed towards improving connectivity in remote areas like the Amazon or rural regions”. Instead, they are likely to be used for deploying 5G in major cities, which he views as an unfair initiative.  Additionally, he noted that “recent public disclosures indicate an increase in revenue levels for all telecommunication companies in Brazil. Internet is not only 5G but also fixed broadband in residences and WI Fi with higher capacity; our issues lie elsewhere,” he reflected.

Adamowicz referred to the case of South Korea, considered “a success” in the implementation of Fair Share schemes.“While it is focused on large companies, small providers are not at risk.  The model aims to reestablish  the relationship between operators and OTTs. Contrary to what might have been predicted, mobile traffic grew by approximately 34% in the last 5 years, indicating no negative impact on demand.  Although one of the providers took content distribution to Japan to avoid the fair contribution charge, the dispute concluded amicably between the involved parties. “An agreement was reached in August 2023. Although it is a challenging matter, this case proves that effective resolutions can be achieved when parties engage in open negotiations.”

To finalize, Borjón explained that from the perspective of regulators, it is important to recognize the operators’ need for revenue margins while also ensuring their capacity to invest in and improve infrastructure to meet the increasing demand driven by artificial intelligence. “There are many issues that can be resolved through fixed-line services, but we also anticipate growth in mobile usage, especially given the digital gap in Latin America.  Fair Share is not the only possible solution for this issue, it is necessary to avoid affecting net neutrality and an alternative path could involve reevaluating spectrum pricing, particularly considering the high fees paid in Latin America,” he concluded.