The network fees folly

One of the central themes to the debate on network fees is that telcos are faced with increasing backhaul costs due to the uptake of streaming services. Some telcos claim market failure because they cannot recover these costs from their customers. This could be the case for operators that mostly offer uncapped or high usage cap baskets and that do not have access to domestic content caches. This is, however, a self-made predicament and not a market failure. Regulatory intervention is only warranted when there is market failure.  

Mobile operators have offered broadband packages with a dedicated data allowance for video streaming (like Netflix) for over a decade. These types of packages are available in Europe, Africa, Asia, the Caribbean and Latin America. Data is often separated into unconditional and conditional data. Conditional data may be dedicated to selected streaming channels or social media applications. Conditional data is usually cheaper to provide for telcos as the content is likely stored locally via Content Delivery Networks (CDNs) and does not trigger the same international bandwidth cost compared to unconditional data.

RIS tracks 8,360 mobile broadband products, across 198 countries for 983 mobile operators every quarter since 2015. Out of those, 1,969 products included conditional data in Q2 2023. There were 535 mobile broadband products with a dedicated streaming allocation (excluding YouTube). Digicel Dominica’s 10 Day Prime Ultra product is one example and includes 20GB unconditional and 10GB of conditional data. The conditional data can be used to stream Netflix.

Telcos around the globe benefit from the demand for streaming services and use it to differentiate their products. There is nothing wrong with uncapped products if content can be accessed domestically. It simply means that the revenue does not increase if streaming demand increases unless customers switch to a faster plan. One way to mitigate the impact of growing streaming demand yet constant revenues (via uncapped products) is to reduce costs for international connectivity by investing into content caches. CDNs are one way of reducing cost and bringing content closer to the consumer. It has the added benefit of improving quality of service.

There is no market failure because operators around the world have differentiated their offerings between dedicated streaming data and unconditional data for a long time. There also exists a clear strategy on how to reduce costs for increasing streaming demands, by moving content close to the edge, something that Content Providers are typically happy to co-invest in. 

For more information on the broadband fair cost recovery debate, you can look at some recent RIS reports on the situation in Europe, Australia and South Korea and the Caribbean.