top of page

Rebutting Arguments in Favor of Internet Tolls

 

In the context of Anatel’s recent public consultation (formally labeled as ”Public Consultation No. 13/2023) regarding the cost-sharing policy, it was noticeable that support predominantly emanated from large telecommunications operators.

In Europe, in a letter signed by several Big Telcos, the same arguments were repeated over and over: the revenues of the operators have been declining, and the culprits behind the infrastructure challenges are the content providers located in the applications layer. But do these arguments make sense at all?

Below, we will meticulously examine the foundational assumptions articulated by the major operators during the consultation and provide technical counterarguments to challenge their assertions.


Argument from “Big Telcos” #1: Big Telcos have been losing revenue despite internet growth


What were the assertions made by the Big Telcos during the consultation?


“In contrast to significant and continuous investments in the expansion of telecommunications networks, the revenues earned by telecommunications providers are practically stagnant all over the world.” – TIM S.A.
“The market failures resulting from the actions of Value-Added Service (VAS) providers directly impact the economic returns from providing telecommunications services. This, in turn, hampers efforts to reduce connectivity gaps and diminishes investment capacity.” – Telefônica S.A.
Telecommunications companies find it challenging to be compensated for the surge in network traffic, despite the concomitant need for increased investments and heightened operating costs.” – Oi S.A.

In essence, the telecommunications companies’ argument hinges on the claim that their revenues remain static, failing to grow alongside the burgeoning Internet. This, they argue, creates an imbalance between those investing in connectivity and those profiting from it.

However, it is crucial to scrutinize the validity of this argument, both within Brazil and on an international scale.

Contrary to the claim, the revenues of Big Telcos have displayed growth rather than stagnation. According to Conexis Brasil Digital, a consortium representing some of Brazil’s largest telecommunications operators, the telecom sector’s 2022 revenue amounted to R$277.7 billion.

It is noteworthy that, albeit at a slightly slower pace, the telecommunications sector still exhibits positive growth, according to data from Anatel, particularly in terms of the escalating demand for broadband internet access.

It is worth noting that the telecommunications sector ranks among the most lucrative in the economy. Data sourced from Valor Investe, which enumerates the ten sectors with the highest overall profitability from 2017 to 2022, underscores this fact.

Furthermore, it is imperative to recognize the substantial government investments and incentives allocated to the infrastructure layer. Brazil, for instance, has received a remarkable R$20 billion from the Ministry of Communications alone since 2020.

In the Brazilian context, the leading telecom operators are experiencing continual growth in their net revenues attributed to 5G technology. A noteworthy example is TIM, which holds the distinction of being the top-performing company in the I.T. and telecom sectors, as recognized in the “Valor 1000” ranking. According to the latest findings, in the year 2023 alone, TIM’s net profits surged by an impressive 124% (equivalent to approximately R$626 million), while its net revenue exhibited a substantial growth of 9.2% (approximately R$5.86 billion), as compared to the corresponding period in the previous year.


Argument from “Big Telcos” # 2: Big Telcos are the sole investors in network infrastructure

What were the assertions made by the Big Telcos during the consultation?

“Up until now, investments in telecommunications infrastructure, which have been pivotal in driving the economic and social advancements we have witnessed, have been exclusively undertaken by the owners of the infrastructure.” – Claro S.A.
“For the purpose of this Public Consultation, the excessive use of network resources involves the generation of substantial and massive traffic, without due compensation for the investments made in constructing, expanding, and maintaining the network.” – TIM S.A.
“The evolutionary model of telecommunications in Brazil is commendable. However, although the entire digital ecosystem benefits from expansion based on obligations, the burden of investment falls solely on telecommunications infrastructure providers.” – Conexis

Indeed, the telecom giants have made substantial investments in infrastructure, mainly because they play a central role in this market.

However, it is paramount to recognize that Big Telcos do not invest in isolation. In the past decade alone, global telecommunications infrastructure has seen investments exceeding US$800 billion from major internet providers.

Among the most substantial investors are the prominent application and content providers, particularly those heavily reliant on the Internet for their operations. Notably, Meta alone has invested over US$100 billion in OPEX and CAPEX for infrastructure worldwide. In Brazil, projects like CGI.br and NIC.br’s “OpenCDN” have significantly contributed to decentralizing internet traffic in the country, with operations in Manaus (AM), Salvador (B.A.), Brasília (D.F.), Belo Horizonte (M.G.), and Recife (P.E.), and soon in Belém (P.A.) and Cuiabá (M.T.).

Furthermore, Netflix has allocated $60 billion for investment over the last five years in several countries, which has lightened the financial load on telecom companies.

But why do both layers of the Internet invest in infrastructure? Because the logic of a free and open network was established based on network neutrality.

This is the case with Content Delivery Networks (CDNs), which receive substantial investments from various internet application providers. By accelerating content delivery and bringing it closer to the end user, they alleviate the network traffic burden. Therefore, this is a self-reinforcing system. The CDN market, buoyed by significant investments not only from Big Tech firms but also various other content providers, is projected to grow by a staggering US$36.5 billion by 2028.


Argument from “Big Telcos” # 3: Big Tech firms harm the users’ rights

What were the assertions made by the Big Telcos during the consultation?

“The emergence of large platforms as public spaces for information exchange and online commerce brings risks to users’ rights, information flows, and public participation.” – Vrio Corp.
“However, this type of market can present commercial asymmetry if one side holds significant market power, which could result in higher prices for other users.” – Telefônica S.A.
“Consumers often attribute issues related to the quality or stability of their connection to the telecommunications provider, even when the problem is associated with a Value Added Service (VAS) using the telecommunications network infrastructure.” – Conexis

Understanding the provisions of the General Telecommunications Law (Law no. 9.472/1997 or “LGT”) is essential. VAS (Value Added Service) encompasses any supplementary service that operators can offer beyond the primary telecommunications activities, such as TV and Internet.

The Big Telcos advocate for Anatel’s authority to impose obligations on VAS providers, arguing that it safeguards user rights. This perspective aligns with §2 of Art. 61 in LGT, which allegedly grants Anatel the power to intervene.

However, this line of reasoning is not without its shortcomings.

To begin, providers have invested significantly in infrastructure, as previously noted. Moreover, the VAS layer contributes value to the Internet, as it is not inherently appealing to end users by itself. Generating demand should not be equated with infringing upon user rights.

Furthermore, considering that the mere existence of a substantial data flow might harm user rights is, at best, debatable. It is the sheer volume and consumption demanded that renders the telecommunications sector attractive, necessitating heightened investment.


Argument from “Big Telcos” # 4: Anatel’s is vested with the authority to regulate cost-sharing

What were the assertions made by the Big Telcos during the consultation?

“In this regard, Oi asserts that these existing powers are adequate for Anatel to govern the relationship between telecommunications operators and Value Added Service (VAS) companies.” – Oi S.A.
“Hence, it is apparent that ANATEL’s legal authority is sufficient to oversee the potential establishment of investment sharing among end-users and network proprietors.” – TIM S.A.
“Considering the dynamism imposed by the digital economy, ANATEL must leverage this context to augment its competencies, implementing measures that expedite the identification and mitigation of deficiencies in the digital marketplace.” – Telefônica S.A.

Anatel is not vested with the authority to impose obligations on VAS providers; any such powers are exclusively applicable to telecommunications operators.

To illustrate this point, we can examine the pre-internet era telephone directory in its printed form. At that time, creating telephone directories required this layer of services to access the data retained by telecommunications operators. Anatel’s role was to establish obligations within the system, compelling telecom companies to furnish data for directory production.

However, the reverse rationale does not withstand scrutiny: Anatel lacks the authority to obligate the VAS layer.

The regulation is unequivocal: VAS should not be conflated with telecommunications. As per §1 of Art. 61 in the General Telecommunications Law (LGT), VAS does not constitute a telecommunications service, and its provider is classified as a user of the telecommunications service that supports it, subject to the rights and obligations inherent to this role.”

If VAS is distinct from telecommunications, Anatel currently lacks the administrative and legal competence to impose obligations on the VAS layer. This reflects the rationale underpinning a regulatory agency, which administers what squarely falls within its purview.

In addition to the General Telecommunications Law, the Brazilian Civil Rights Framework for the Internet also upholds the fundamental principle of net neutrality. According to Art. 9, “Those in charge of the transmission, switching and routing are required to deal in an isonomic way with any data bundles without distinction between content, origin and destination, service, terminal or application.”

This underscores that an open and unrestricted internet precludes data discrimination based on its content, except in minimal cases, which do not apply to the cost-sharing proposal.


Argument from “Big Telcos” # 5: Big Tech firms create a disproportionate demand on the network

What were the assertions made by the Big Telcos during the consultation?

Value Added Service (VAS) provider users currently exert disproportionate usage of telecommunications infrastructure, a scenario that was not foreseen when the General Telecommunications Law (LGT) and the Marco Civil da Internet (MCI) were drafted.” – Claro S.A.
Massive traffic generated by video content, particularly high-resolution formats like 4K, placing substantial strain on telecommunications networks, necessitating ever-increasing investments without any compensatory arrangements from the primary generators of this traffic.” – TIM S.A.
“Content providers and digital platforms, particularly the significant role played by big tech companies, in consuming extensive network resources, constituting a substantial portion of overall traffic.” – Conexis

As previously noted, the investments undertaken by VAS providers in the telecommunications infrastructure itself have led to a considerable reduction in data traffic demand and use.

Furthermore, it is crucial to recognize that high volumes of data consumption do not arise from the actions of internet application providers but are instead a direct reflection of end consumers’ behaviors and usage patterns. Moreover, this surge in data consumption plays a pivotal role in incentivizing and bolstering the telecommunications sector. In fact, the strong impetus for expanding 5G infrastructure is a direct consequence of consumers’ data consumption habits.

Lastly, it is vital to distinguish between the various layers of this infrastructure. Mobile networks and fixed internet networks operate under distinct standards and autonomous structures, which makes the argument regarding network overload even more contentious and untimely.

Given these reasons, the policy of cost-sharing on the Internet is unsupportable. There are no valid arguments to endorse such a measure.



Comments


bottom of page