“Pay for access” is dead in the water

In February 2022, the four largest ISPs (or MNOs) in Europe wrote an open letter demanding that Content and Application Providers (CAPs) pay for access to their networks. We’ve covered this debate from a variety of different angles in previous newsletters, starting all the way back in April 2022: MNO EBITDA margins; the connectivity segment’s growth compared to other segments of the value chain; the cause of stagnant MNO revenues; the impact of Sending Party Pays in South Korea; the role of data caps in limiting revenue growth; the cost of capital and return on equity for all segments of the value chain. 

We’ve consistently argued that the MNO’s arguments misrepresent the full picture by ignoring the role of CAPs in driving demand, use extremely limited data and would have significant negative effects on access and affordability of the Internet if they were to be implemented. 

Last week, the Body of European Regulators for Electronic Communications (BEREC), released a preliminary report considering the claims for the MNO’s in their February open letter. It’s a clear and concise rebuttal to the open letter. 

AssumptionBEREC’s response
Traffic causation: MNOs made the claim that the high growth in data usage was caused by the CAPs. The claim that data growth is caused by CAPs ignores the fact that it is the user that demands the content and that the user is sitting on the ISPs network and not on the CAPs network. 
Cost drivers: the claim is that an increase in traffic directly translates into higher costs for MNOs, which they cannot recoup. BEREC’s response is that fixed networks are not traffic sensitive and that mobile networks have some degree of traffic sensitivity but that the cost of the upgrades necessary to handle the increased traffic are very low compared to the cost of rolling out new networks. These upgrade costs are easily covered by existing revenues from users. 
Mutual interdependence: the MNOs ignore the fact that they would not have a viable business if there was no content. Content drives higher bandwidth demand, which drives higher uptake of internet bandwidth, which drives MNO revenues as users upgrade their bandwidth. This is all part of a connected system. 
Free-riding: MNO’s claim that CAPs use their networks without compensation. The IP Interconnection market is a competitive market and there is no room for free-riding in a competitive market. The MNOs have supplied no arguments that there is any market failure. 
Other news from around Africa
  • Tanzania awards spectrum: The regulator has raised US$187.5 million from the sale of spectrum in the 700, 2300, 2600 and 3500MHz bands. The regulator claims that this auction meets the objectives of the National Information Communications and Technology Policy, which includes the “promotion of efficient use of spectrum”. However, as we know from the spectrum efficiency spectrum, these national auctions are not the most efficient way of allocating spectrum.