The European Union’s Digital Decade Connectivity Goals

Telecommunications infrastructures are a foundational element of the digital transformation, which would be impossible without them. For this reason, the EU’s Digital Decade strategic programme begins by setting out the goals in this area to be achieved by 2030. The first of these is the existence of fixed access coverage of at least one gigabit in all households. The second is for all populated areas to have 5G coverage. An investment gap of at least €174 billion has been identified to meet European connectivity targets, with the risk that 45 million people will not have access to adequate networks by 2030 if they are not covered.

The European Union’s strategic programme does not specify the sources of funding for its objectives. In the case of network infrastructures, however, the European Declaration on Digital Rights and Principles for the Digital Decade, endorsed by the Council, Parliament and Commission, sets the direction for this. The European institutions commit to “develop appropriate frameworks for all market players benefiting from the digital transformation to assume their social responsibilities and to make a fair and proportionate contribution to the costs of public goods, services and infrastructure, for the benefit of all people living in the EU”. 

In February 2023, on the occasion of the presentation of the Digital Decade connectivity package, the European Commission formalised the discussion on the financing of gigabit network coverage targets. Under the title “exploratory consultation on the future of the connectivity sector and its infrastructure”, the EU executive sought to gather stakeholders’ views on how growing connectivity demands and technological advances could affect future developments and needs. Without ruling out regulatory action, the Commission thereby recognised the need for a thorough analysis of the underlying facts and figures before taking any decision on the issue, in particular on the development and implementation of the “fair contribution” concept.

Operators vs. Technology: How should the financing of the Digital Decade connectivity goals be distributed?

European telecommunications operators, as central players in the deployment of access network infrastructures, have sought to set the environment and framework for the debate through their association, ETNO. The starting point has been to focus on the need for very high-performance telecommunications networks as a consequence of the increase in Internet traffic. According to data provided in the 2023 State of the Networks report, data consumption on fixed and mobile networks in Europe has almost increased ninefold between 2014 and 2022, from 103 Exabytes to 875 Exabytes, with annual growth forecast to remain in the range of 20%-25%.

Growth of Data Traffic on Fixed and Mobile Networks

Source: The State of Digital Communications 2023, ENTO
The aforementioned report also pointed to those responsible for traffic growth. Its detailed analysis pointed to the video-on-demand and streaming services of Alphabet, Amazon, Apple, Meta, Microsoft, and Netflix as active players in 56% of the traffic flowing through the networks, describing these technology companies as Large Traffic Generators (LTGs). This establishes the two main factions in the dispute: the European telecommunications operators and the large US technology companies. Given that the economic fundamentals of the European telecommunications sector, according to the association that represents it, would be too weak to face this investment on its own, the operators are calling for the LTGs to have an economic implication in the cost of deploying access networks.

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In the operators’ view, the best solution to resolve the unavoidable participation of the LTGs in the cost of network infrastructure is the creation of a mechanism for negotiating the contribution between the two, determining on a case-by-case basis and bilaterally the reasonable and fair contribution. In its proposal, the mechanism would only be compulsory for those companies that generate more than 5% of traffic in loaded hours in at least three Member States and would be subject to arbitration by the European Commission where necessary. The justification for establishing the legal obligation to negotiate is based on the asymmetry of power of the large technology companies vis-à-vis the operators, which prevents the latter from transferring a reasonable cost to the technology companies through voluntary agreements, e.g. for network interconnection.

The Computer and Communications Industry Association (CCIA) has acted as a unifier and spokesperson for the US technology giants in the dispute. In a first report developed for the association in July 2022, ETNO’s arguments on traffic growth as a driver of rising network deployment costs were rejected. The US technologists pointed out that incremental traffic-related costs were negligible for fixed access and low and declining for mobile networks. In addition, they underline the symbiotic relationship between operators and LTGs, as the traffic surges caused by their services are the value added that drives the take-up of broadband lines.

Later on, the technology platforms have also expressed their opposition to the specific proposal to introduce a mechanism of mandatory negotiation of a contribution to the cost of networks with operators, describing it as a “teleco tax”. Firstly, they denied the alleged asymmetry of power. Secondly, they considered that it would breach the principle of network neutrality by introducing differentiated treatment for a specific type of traffic. Finally, they emphasised that the major technology companies already contribute to the development and improvement of networks, having invested €183 billion between 2011 and 2021 in infrastructures that benefit European connectivity (e.g. data centres, terrestrial, and submarine cables, CDNs).

Investment in Digital Infrastructures by Major Technology Companies between 2011 to 2021

Source: The impact of tech companies' network investment on the economics of Broadband ISPs, Analysys Mason, 2022

In addition to the major European telecom operators and the LTGs, other stakeholders have spoken out on the issue, generally opposing what they also refer to as the “teleco tax”. Among the various manifestos published, perhaps the most relevant was the one signed by a broad coalition of civil rights associations, copyright holders, consumer organisations, streaming platforms, and virtual and alternative telecommunications operators. This diverse group of actors pointed out that the proposal made by ETNO poses serious threats to competition, consumer choice and the internet ecosystem as a whole.

It should be noted that the stakeholders opposing the operators’ position have not proposed any alternative mechanism for meeting the cost of the Digital Decade connectivity targets. In their view, the necessary public and private funding exists to support the deployment of the necessary infrastructure without the introduction of new instruments.

The Division and Shifting Balances in European Legislative and Regulatory Institutions

Within the Union’s legislative bodies, Parliament and Council, positions have been divided and fluctuating since the beginning of the dispute. Starting with the Parliament, the citizens’ chamber removed references to a “fair contribution” from the Digital Decade strategic framework in July 2022. Barely a year later, in plenary session in June 2023, still far from clear support for the mechanism proposed by ETNO, the Parliament’s annual competition policy report was adopted, calling for “the establishment of a policy framework in which large traffic generators contribute fairly to the adequate financing of telecommunications networks without prejudice to net neutrality”.

As for the Council, on 2 June 2023 it met in its Telecoms configuration, including on its agenda an exchange of views on the future of the sector. The dialogue between Member States’ top sectoral policy representatives was held behind closed doors, but it has emerged that up to 18 countries opposed the establishment of a contribution from LTGs to operators or demanded further study. Criticisms of ETNO’s proposal focused on the lack of a full analysis of the effects on the digital ecosystem, the absence of an investment deficit and the risk that large technology companies could pass on the additional cost of the obligation to consumers. However, it is important to note that the operators’ proposal was supported by three of the four large EU countries (France, Italy, and Spain).

Finally, among the positions of the EU institutions, it is necessary to include that expressed by the association of EU regulators (BEREC, Body of European Regulators for Electronic Communications), which has ratified its traditional position against implementing sender party pays in the Internet sector. The body made public a summary of its response to the European Commission’s consultation, in which it reiterated its reservations about the impact of the measure’s implementation on end-users, net neutrality and competition.

Looking for Alternatives to Fund European Connectivity Targets

ETNO’s proposal for financing the connectivity objectives of the Digital Decade appears to be at a dead end. In the absence of the publication by the European Commission of the conclusions of the exploratory consultation, the bilateral negotiation mechanism between operators and LTGs, similar to the one established in South Korea, does not seem to gather enough support. Is there really a need for greater capillarity and breadth of deployment of gigabit networks and what would be the other alternatives to finance them that would not conflict with the principle of net neutrality?



The evidence of the need for additional network infrastructures to the existing ones to achieve the connectivity objectives of the Digital Decade certainly exists. Even in Spain, the European leader in fibre optic broadband deployment, public funds have been used to support a last resort service, UNICO Demanda Rural, to provide connectivity of reasonable performance in the most remote areas. However, technological solutions of this type would not be sufficient to provide gigabit connectivity to the entire population, resulting in the 45 million people without access to adequate networks mentioned at the beginning of this text.

As mentioned above, the LTGs point in their latest position paper to the continuity of the current model of network deployment, based on private investment supported by occasional public support in rural and remote areas. However, the source of public funding towards which they point, the use by Member States of the Recovery and Resilience Mechanism (RRM), may prove insufficient to mobilise the required investment of at least €174 billion. According to data compiled by the Bruegel Foundation, member states will devote approximately €33.5 billion of the RRM to connectivity projects, which would hardly be enough to incentivise the remaining private investment in remote and unprofitable areas. In addition, EU state aid rules have so far hindered effective intervention by countries that have relied more heavily on public incentives for network deployment.

An instrument ignored by both parties, LTG and operators, but which nevertheless the European Commission seems to open as an option in its exploratory consultation, is the constitution of a Universal Service Fund (USF), financed by the former or by both. The USF, fed by contributions from operators, has been used in the United States to finance, among other things, access network extension programmes. Some of the “fair contribution” models proposed for the US market by a member of the US regulator, the Federal Communications Commission (FCC), include the LTGs among the group of companies that contribute to the FSU. 

Finally, during the State of the Union debate in September 2022, the President of the European Commission announced her intention to promote an EU Sovereign Wealth Fund. Although the Commission’s proposal has not yet materialised, Commissioner Breton has given his vision of it as an instrument financed by debt shared by Member States, aimed at supporting well-identified projects of interest to EU sovereignty in any industrial sector. Achieving the connectivity objectives of the Digital Decade could well be included among the range of projects to be supported by the Sovereignty Fund.

An instrument ignored by both parties, LTG and operators, but which nevertheless the European Commission seems to open as an option in its exploratory consultation, is the constitution of a Universal Service Fund (USF), financed by the former or by both. The USF, fed by contributions from operators, has been used in the United States to finance, among other things, access network extension programmes. Some of the “fair contribution” models proposed for the US market by a member of the US regulator, the Federal Communications Commission (FCC), include the LTGs among the group of companies that contribute to the FSU. 

Together with the combination of the funding instruments described in this section, the removal of certain sectoral regulatory barriers could strengthen the economic situation of operators and contribute to achieving the goals of the Digital Decade. An example would be the removal of wholesale obligations and limitations to market consolidation.

Conclusion

The connectivity goals of the Digital Decade are a central pillar for Europe’s economic and social well-being. The digital transformation requires a high capillarity of high-capacity and high-performance networks, enabling innovative applications and facilitating universal access to them. Maintaining sustainable and inclusive economic growth therefore depends on mobilising the resources in the coming years to meet the investment needs to realise the ubiquity of ultrafast broadband with access speeds beyond gigabit, both fixed (fibre optic) and mobile (5G and 6G).

The financing needs to make the extension of gigabit networks a reality have been estimated at €174 billion. Spain has included the search for a solution to the challenge in its rotating Presidency programme, which is one of the likely items on the agenda of the informal Council of the Union of telecommunications officials that it intends to hold in October 2023. The materialisation of the solution will require the identification of an appropriate mechanism to implement the “fair contribution” of all parties, but also the continued maintenance of appropriate state aid instruments, perhaps in a more flexible state aid framework and possibly reinforced with new tools such as the Sovereignty Fund.

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