WorldITShow Should Google pay for data traffic explosion?

By James Thomson

Explosive growth in the volume of Internet traffic on fixed and mobile networks in Europe is posing a challenge to policy makers. They must incentivise Europe’s leading operators to invest billions of euros in new high-speed networks without upsetting the balance of competition in the market that they have so carefully nurtured.

Forecasts to 2015 by equipment maker Cisco predict that Internet traffic on fixed networks in Europe will grow by 35 percent per year, driven by video applications. Internet traffic on mobile networks is forecast to more than double every year, driven by the increasing take-up of smartphone and tablet devices.

Telecoms operators in Europe are facing two investment challenges.

First, they must carry the cost of adding capacity to their existing networks to support the short-term boom in traffic levels, so that end-users can experience the same quality of service as today.

Second, even bigger investment will be needed to roll out higher speed networks based on fibre and 4G mobile LTE.

European Union policy makers in Brussels have set ambitious targets. By 2020 they want all Europeans to have access to broadband with speeds of at least 30 Mbps, and 50 percent of homes to have connections with speeds above 100 Mbps. But so far Europe is not on track to meet those targets: deployment of high-speed networks in most European countries has barely begun.

The European Commission estimates that up to EUR 60 billion (90 trillion won) will need to be spent to achieve the 30 Mbps target, and up to EUR 270 billion (420 trillion won) for the 100 Mbps target.

Europe has highly competitive broadband markets today, because the dominant telecoms operators are required to share their networks with competitors (largely through a process called local loop unbundling).

Policy makers and regulatory authorities are grappling with the problem of how to carry this approach forward to the new, high-speed networks in order to protect competition, while not discouraging investment in these very networks that have (mostly) not yet been built.

The major European telecoms operators argue that part of the network investment should be paid for by the Internet content companies whose traffic will choke the networks unless there is extra investment. They say that bandwidth-hungry video services such as Google’s YouTube and the BBC iPlayer should pay a reasonable toll for using Europe’s high-speed digital highways. This is one aspect of a debate on net neutrality that has started in Europe.

The growing use of smartphones and tablets requires more radio spectrum for 3G and future 4G mobile broadband. European countries are now in the process of awarding new spectrum in the 800 MHz (digital dividend) and 2.6 GHz bands for LTE, and making changes to allow use of existing spectrum bands for this technology too. There is little interest in Europe in the rival 4G technology WiMAX.

Policy makers are also concerned about the prices Europeans pay for using mobile data services while roaming in another European country, which are considerably more expensive than domestic tariffs. The European Commission is threatening to introduce retail price caps in 2012 if mobile operators don’t modify their commercial offers before then.