Published
January 30, 2023
Economic digital transformation has governments around the world scrambling to find the resources to finance much-needed investments to upgrade broadband infrastructure. Such investments are truly in the interest of all stakeholders involved: internet service providers, those that provide content and applications over the networks, as well as the businesses and consumers that rely upon fast and reliable connectivity to access that content.
Yet, there is an increasingly one-sided debate underway in some international markets regarding who pays for the future funding of Internet infrastructure and whether foreign governments should force a handful of companies to bankroll these investments. The problem is that the handful of companies being targeted are almost exclusively American companies.
In South Korea, the National Assembly has engaged in a heated debate over legislation that would compel foreign “global content and application providers” (CAPs) to pay enormous new fees to Korean network and broadband providers.
Similarly, debate is underway in the European Union about how to get “Big Tech” to pay their “fair share” of network costs. Soon, the European Commission is expected to open a consultation and debate on the future of the internet ecosystem and whether a handful of U.S. headquartered companies should be forced to subsidize Europe’s internet infrastructure.
Governments shouldn’t target American companies
Governments should not be in the business of discriminating against foreign companies that have long been major investors and employers in their countries. Doing so raises troubling questions of fairness, especially when those taxes lead to increased revenue to prop up their domestic firms.
Discriminatory network fees also conflict with numerous trade rules. By targeting CAPs primarily from the U.S. and by not subjecting other foreign CAPs to similar treatment, network fees violate WTO rules governing national treatment and most-favored nation status, as well as similar bilateral commitments. These network fees also undermine WTO commitments on market access to the EU, South Korea, and commitments made by many other jurisdictions.
Applying these network fees is also, quite simply, not practical. Imagine if these actions were duplicated in markets around the world. The math is not complicated: it is not a sustainable way of funding the world’s digital infrastructure, as American firms do not have endless resources.
It is incumbent upon the U.S. government to respond with a full range of trade and foreign policy tools when foreign countries seek to write rules for the global digital economy that single out and discriminate against American companies. We have seen some pushback from the Biden Administration as network fees have been debated in international markets, though there is much more to be done.
Internationally, CAPs are already contributing
While it is in the interest of CAPs to support network investments, policymakers often suggest these providers are getting a free ride. If CAPs want to use the network, the argument goes, then they should pay their “fair share.” Not only does this debate misrepresent how the Internet works, it ignores the significant infrastructure investment from CAPs that reduce costs in these ecosystems.
According to research done by Analysys Mason last year, CAPs invest heavily in digital infrastructure relied upon by foreign internet service providers. The report notes these technology firms collectively invest €22 billion each year in Europe’s Internet infrastructure. It details a similar story in markets around the world, citing that from 2011 to 2022, CAPs invested almost $900 billion into the very infrastructure that hosts, transports, and delivers their services globally via submarine cables, content delivery networks, and data centers, saving global internet service providers billions of dollars annually.
Taxing cross-border data flows will put the brakes on growth
An October 2022 report by Europe’s top telecom regulator, BEREC, found “no evidence” to justify forcing network fees on high-traffic websites and apps, concluding instead that such a proposal would not only be unnecessary, but “could be of significant harm to the internet ecosystem.” BEREC cites how network fees would create tensions between Internet access providers and CAPs, which could in turn lead to connection issues and disruptions. Concern also exists that these fees would act as a tax on data flows, harming infrastructure development instead of supporting it, and reducing innovation in applications and investments in content. The end result for the broader digital economy around the globe would be slower growth and job creation.
Ultimately, consumers are left holding the bill
Efforts to target American CAPs providers by levying billions in additional fees will prove immensely shortsighted, as those costs will ultimately be offset onto consumers in the form of higher prices and fewer choices.
Foreign governments would be wise to take a step back. Pursuing this path of network fees risks inflaming international trade tensions with the United States just as the world is trying to recover from the pandemic, fight record inflation, and respond to an energy crisis sparked by Russia’s invasion of Ukraine.
Workable solutions will require a broader approach, rather than targeting American firms to subsidize these upgrades. Governments must reject proposals that unfairly discriminate against American firms. Instead, policymakers must meet the challenge by collaborating to forge workable solutions.
About the authors
Jordan G. Heiber
Jordan Heiber leads the Chamber’s international privacy and data flow policy portfolio and manages a team responsible for the full suite of digital policy issues, including cybersecurity, artificial intelligence, and more.
