Strand Consult says key figures are estimates not published, verifiable data – among other things

The fair-share debate has been bubbling under the regulatory surface for some years, but for a long time was rejected by the European Commission. Now it is the subject of a 12-week, long awaited Connectivity Package consultation by the Commission which will finish in late May and, in some form, could become part of Europe’s telecoms policy framework.

Strand Consult says Analysys Mason has been commissioned to produce a series of reports by US Big Tech companies like Google, Facebook, Netflix, Amazon, Microsoft, and their trade associations and supports both their publication and critical examination of them. The Denmark-based analyst firm’s Roslyn Layton, PhD* has written a freely available report, Fact Check on Analysys Mason’s Claims on Big Tech Investments and Arguments Against Broadband Cost Recovery.

Estimates versus actual numbers

Layton points out that some Analysys Mason’s numbers are “estimates”, which she sets out to compare against audited, publicly available numbers from broadband providers. In the event, she was unable to verify many of the claims and draws a series of conclusions.

For example, Analysys Mason’s claims about the level of investment in internet infrastructure by edge providers appear credible and consistent with the size and scale of the major internet giants (or edge providers in US parlance). However, these numbers are Analysys Mason’s calculations – there is no such line item in the financial statements of edge providers.

Layton says comparing these unverifiable “estimates” with audited, public numbers from broadband providers means the methodology is problematic.

Secondly, she found the type, purpose, level, regulatory treatment and location of the infrastructure investments in the Big Tech comparisons “do not cohere”. The investments largely reflect the requirements and profit-driven decisions of edge providers for their own businesses and “direct investment in their own infrastructure” (p. 21).

In contrast, broadband providers as a class invest far more in “internet infrastructure” to connect end users to the internet both in nominal amounts and as a percentage of their revenue, compared to Analysys Mason’s figures for edge providers.

Big spenders in the US

Publicly available reports and financial statements document that in the US alone, broadband providers invest more in “internet infrastructure” annually, amounting to more than $86 billion in capital expenditure on networks annually. This equals a quarter or more of US broadband providers’ annual revenue, Layton states. Whereas the investment figures for edge providers presented by Analysys Mason – designated as the internet giants’ “internet infrastructure” – amount to 1% of their revenue.

The 2019 report, The State of Broadband: Broadband as a Foundation for Sustainable Development, by the International Telecommunication Union reported that capital expenditure by telecoms providers in 2016 topped $354 billion annually. That number has likely grown as the US experienced a 20-year high in investment in 2021. Analysys Mason reports an annual average for edge providers of $75 billion for 2014-2017, and $120 billion for 2018-2021.

Analysys Mason’s claim of broadband providers’ cost savings is “invented and unverifiable”. Layton takes issues with claims that edge providers’ expenditures delivers between $5 billion and $6.4 billion in cost savings for broadband providers, saying she could not verify this either from the data provided or separate, independent reports. Layton acknowledges it is possible to imagine that a large broadband provider(s) could realize cost saving or greater efficiency from technology partnerships or other arrangements with edge providers – but that is not the case being presented.

Rather, Analysys Mason claims many broadband providers save money because of Big Tech’s investments. Strand Consult shows that Analysys Mason’s model, based upon an average country and an operator with 4.5 million subscribers and 30% market share only fits one country in Europe, if not the world: Romania. Analysys Mason’s calculations, based on a Layton says amount to “a mishmash of figures to form a global conclusion, are neither factual nor credible”.

Also, she stresses that the ostensible purpose of edge providers’ investment in infrastructure is to manage, if not increase, content, service and data to end users, which does not necessarily translate into a decrease in cost for broadband providers.

Separately, Strand Consult’s research and survey of 50 rural broadband providers in 24 US states did not discover cost savings from edge providers’ investments, but the opposite: costs are increasing due to rising traffic generated by edge providers.

Analysys Mason’s “claims on regulatory holism (that the parts are tightly integrated and have to be looked as a whole) and scrutiny of cost recovery reveals pseudo-facts and opinions presented as facts.” The premise is that cost recovery will harm end users and investment, but no theory, academic references nor empirical evidence is provided to prove this.  

Layton says this section of Analysys Mason’s report mischaracterises broadband cost recovery policy efforts globally. For example, it characterises cost recovery as mandated network usage fees, yet no such regime exists. South Korea still relies on market-based negotiation for data transit between content providers and broadband providers. Strand Consult provides official links to the policies and proceedings around the world so that readers can judge for themselves.

Indeed the policymaking that is underway in South Korea is a synthesis of seven bills from different political parties and attempts to strengthen the market-based negotiation between edge providers and broadband providers with proposals for good faith, duty to deal, transparency and prohibitions against refusal to supply, according to Strand Consult. These conditions became necessary because edge providers have either threatened to withhold or degrade content if free access was not given by broadband providers.

Analysys Mason’s claims about cost recovery and South Korea fail the fact check, contradicting the country’s rating as a world-leading broadband provider as measured by multiple sources. In the last section of the paper, Analysys Mason asserts that cost recovery will harm investment and end users, with a particular attempt to impugn cost recovery efforts in South Korea.

Strand Consult provides the facts on South Korea. Authoritative, independent sources on South Korea shows that content and investment have increased, and broadband prices have fallen. South Korea reigns as the world’s leading broadband nation, enjoys the world’s highest adoption of next-generation networks, and ranks seventh globally for its creative industries. Moreover, Google and Netflix report record profits in South Korea, even when they must negotiate for network usage with broadband providers. 

The purpose of Analysys Mason’s report is to argue for a status quo policy for Big Tech. Analysys Mason states, “This report is intended to bring a clear and evidenced-based perspective to the global debate regarding whether network usage fees should be introduced.” (p. 4).

Layton’s view is that the report does not provide evidence about network usage fees, instead demonstrating that tech companies are investing more in their own businesses, notably to make them more efficient at delivering more content and services, which is rational and predictable. However, it does not automatically follow that internet giants are entitled to free-of-charge access broadband providers’ networks.

Layton turns the argument on its head. She says that if edge providers believe they are so critical to the ecosystem and that they are leading investors in “internet infrastructure,” to the extent that they want their investment to be measured against that of broadband providers, then this is a possible justification for edge providers being regulated like broadband providers.

There is no question that the financing of broadband networks has become an important policy issue, given the documented shortfall of broadband network investment in certain areas, the social cost of not having broadband access, and the growing reliance of society and the economy on broadband networks. Many nations increasingly see that edge providers have a role and responsibility to participate in the financing of networks beyond the provision of their proprietary services.

Analysys Mason’s report is interesting in its content and timing, arguing against global efforts at broadband cost recovery. Big Tech doesn’t want change as it benefits handsomely from others’ broadband investments and as more people adopt the internet.

Strand Consult also fact checked Analysys Mason assertion of the “interdependent, mutually beneficial” markets for data transport. The former’s microeconomic analysis of 50 rural US FTTH providers showed their costs are rising as video streaming for entertainment grows. Rural broadband providers cannot recover costs – they have no data exchange relationships with Big Techcos anyway – and their attempts to negotiate fall on deaf ears. Few, if any, broadband providers have been able to raise prices meaningfully in the face of growing costs.

Even if policymakers believe Big Tech has no obligation to pay or negotiate for the use of broadband providers’ networks (as Netflix has argued in South Korea court), there is a still a valid case for internet giants to support universal service obligations and affordable connectivity programs which provide vouchers and broadband subsidies directly to end users. If Big Tech wants accolades as infrastructure providers, they should help shoulder the burdens.

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*Roslyn Layton (pictured below) earned her PhD in internet economics and has worked in this domain for more than a decade, while Strand Consult has studied this issue globally for more than three years, and runs a knowledge center at fair cost recovery – Strand Consult

** written by David Abecassis, Michael Kende, Shahan Osman, Ryan Spence and Natalie Choi