Last week, H+K London hosted the great and the good (our words, not theirs) of UK telecoms at a Chatham House rules industry dinner.
The headline topic for discussion was ‘who pays for the internet?’ – a vexed question in telecoms circles. Some of the world’s biggest companies profit handsomely off the back of telcos’ networks, without needing to invest in building or maintaining these networks themselves.
That might sound like sour grapes, until you consider that most network traffic (50-80%) comes from 5-10 companies. The numbers vary depending on which network you ask, but the principle is the same. The models of many big ‘content’ businesses rely on leveraging significant past investment in networks made by other companies, without which these newer businesses simply wouldn’t be viable.
At a time when telecoms companies are struggling with margins, you can see why the industry view is that this situation needs reform of some sort – but how? Further complicating matters is the principle of net neutrality, which means that all internet traffic must be given equal billing by network providers.
This means that, in the UK at least, there’s no framework for telcos to charge fees to the handful of companies responsible for the majority of internet traffic.
This isn’t the only option, of course. There are middle ground solutions, which may prove more practical while still going some way to providing more balance between big ‘content’ companies and the vital networks, without which their product doesn’t exist. Not all solutions are commercial: some are focused on reducing the strain on networks. One such option would be to turn down the bit rate of certain content, such as adverts.
The question of who pays for the internet is simple, but it is clear from the discussion that the potential answers are deeply complex. Part of the problem is the current state of the UK’s telecoms industry, with a quest for scale and efficiency driving plentiful consolidation. At the same time there are over 100 ‘alt nets’ laying fibre and/or providing internet. The popular view of media and analysts is that the market cannot sustain so many operators and, as such, many will fail.
Perhaps the biggest factor in all of this is the intense investment required to build a UK telecoms infrastructure fit for the future. Ensuring high speed broadband connectivity for all is still a work in progress, meanwhile 5G standalone requires vast investment to deliver on its economic promise.
In the face of all these challenges, it’s unaffordable for UK telcos to be continually subsidising government policy areas without more support in return. Free SIM cards and data distributed in abundance during the pandemic had a direct impact on the availability of funds for capital investment. The worry is that Covid lessons won’t be learned, and the importance of telcos that were called on to keep the country running at any cost will not translate into recognition of the importance of investing in tomorrow’s networks to keep pace with our ever-growing demand for data and connectivity. Bluntly, this needs to change.
As a relative outsider, it’s a fascinating time for the telecoms industry – but you get the distinct sense that many insiders would prefer it to be less fascinating. In the run up to the UK’s next general election in 2025, it will be interesting to see how each party sets out its vision for British business, of which telecoms providers are such a key part. As connectivity continues to grow in strategic importance, a healthy telecoms industry is a pre-requisite of a growing, prosperous Britain.