“The companies that deliver content are not the ones that monetize it”

Lhe dizzying growth in data traffic has made relations between telecommunications operators and digital giants increasingly delicate. The goose is indeed content, from video to games, live streaming to social media posts. However, the companies that are responsible for delivering this content are not those that monetize it.

Content delivery requires quality, capital-intensive network infrastructure deployed primarily by telecom operators. The investment requirement to achieve the connectivity targets set by the European Union is estimated at at least an additional €174 billion. This financing and that necessary for the operation and maintenance of the networks come from the European telecoms industry. The business model of these operators is based primarily on one side of the market: consumers, billed monthly.

On the other side of the market, content providers have experienced remarkable economic growth based on this infrastructure. The giants Facebook, Amazon, Netflix and Google have developed sophisticated business models that allow them to earn money through advertising, data monetization and services offered (premium video, online platforms).

The two sides of the market

It would be easy to conclude that operators should simply change their model by mobilizing the two sides of the market: consumers and content providers. But this will remain very unlikely in the absence of regulatory intervention due to the imbalance between the market powers of the players. The telecom sector is fragmented among relatively small operators, while digital platforms are expanding globally at high speed. Trade relations are therefore clearly not balanced, not without a negative impact on the efficient functioning of the market.

One of the hypotheses tested by the European Commission is the sharing of network costs between digital companies and operators. The intuition is simple: the distribution of content, mainly monetized by those who provide it, generates costs for operators. Therefore, the functioning of the market would be more efficient if digital companies made a contribution “fair and proportionate” at these costs.

From an economic point of view, this makes a lot of sense. Today, the main incentive for web giants is to generate more and more traffic – with increasing energy consumption and environmental footprint – so that it can be monetized. Carriers, on the other hand, are faced with costly network upgrades and a limited ability to monetize them, as raising consumer bills is not an option, especially in the current inflationary environment. This means that the market has no mechanism to properly internalize this negative externality, borne by operators while it stems from the economic models deployed by content platforms to attract ever more demand.

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