An article by Wolfgang Kopf, Senior Vice President for Group Public and Regulatory Affairs at Deutsche Telekom AG.
In the midst of the coronavirus crisis, Meta abruptly terminated a long-standing data transport contract with Deutsche Telekom and ceased all payments, even as data traffic through Telekom’s network soared to unprecedented levels. Telekom sued Meta and won. Nevertheless, regulation is needed at the European level, as this issue is part of a larger context.
The old Internet is dead
The Internet is open to everyone. However, despite of its virtual nature, it relies on costly infrastructure. As data traffic grows, continuous network expansion is crucial to ensure data reaches end-users without discrimination. Traditionally, the internet operated on a decentralized infrastructure comprised of thousands of interconnected networks, forming a "network of networks." In this framework, fees for transmitting data between networks played a major role in funding network expansion. Charges were typically waived only between networks with comparable data exchange volumes, referred to as Tier 1 operators, thereby ensuring a practical and fair system.
However, today's Internet bears little resemblance with this old world. Currently, 71% of global data traffic flows through proprietary backbone networks and content delivery networks owned by a handful of large Internet companies and hyperscalers – Big Tech. These companies employ every possible tactic to attract customers to their platforms and create barriers to switching. Leveraging their superior bargaining power, they have managed to ensure they pay nothing or significantly less than in the early days of the Internet for data transport to the customer, despite highly asymmetrical data traffic flows. They benefit from the fact that telecom networks are strictly regulated, whereas there are no regulations for Big Tech’s backbone networks. While European network operators are subject to strict net neutrality rules, Big Tech backbone networks are not. Furthermore, discussions about broader platform neutrality for content have not even begun.
The principle of net neutrality is being taken to an absurd extreme. Network operators must transport all Big Tech traffic to customers, no matter how large the volumes or how much spam and advertising it may contain. This entails constant network upgrades, not only to manage high data volumes but also to comply with net neutrality. Congested networks hinder free and neutral data flows. Therefore, the European debate correctly identifies a threat to net neutrality, but this threat emanates from Big Tech, not network operators. Continuous network expansion is vital for maintaining net neutrality. Isn’t it fair to ask the companies that disproportionately benefit from this valuable service to contribute to its costs?
A strategic question
For me, this is also a strategic question. What is the alternative? Either consumers bear the costs through higher Internet access charges, or, due to tough competition and regulation, telecom providers shoulder the burden. The latter scenario hampers telecom providers’ ability to invest in network expansion or new business areas such as cloud services and AI.
The legal dispute between Telekom and Meta is therefore part of a larger story. In the midst of the coronavirus crisis, Meta unilaterally terminated a ten-year data transport contract with Telekom and stopped payments overnight. Yet Meta continues to send significant volumes of data from popular services such as Instagram and WhatsApp directly into Deutsche Telekom's network. Telekom filed a lawsuit in July 2021 to enforce payment for this valuable service, despite Meta’s strong bargaining power. As a reminder, Meta made the highest profits in the company's history during the 2021 corona crisis, totaling almost $40 billion.
Court ruling: Meta must pay for data transport
Three years after the lawsuit was filed the court made a ruling in May 2024. The Cologne regional court fully confirmed Telekom’s view: Meta must pay for the use of the network. The payments amount to a double-digit million sum for the period in question.
The court case is about more than unpaid invoices – it fundamentally addresses whether network operators in Europe can charge large Internet companies for data transport. The court affirmed this, debunking Big Tech’s narrative of telcos pressing for “absurd” network charges in Europe. The ruling highlights how large Internet companies use their superior bargaining power to avoid paying for valuable services – neither to Deutsche Telekom nor to other European operators. Meta argued in court that it does not pay anywhere else, and that Deutsche Telekom is the only one still charging fees.
The proceedings also show that the market cannot solve this issue on its own. The court recognized Big Tech’s bargaining power over telecom companies but did not determine the appropriate price for data transport. Still, the ruling is significant.
European rules instead of court cases?
In light of the costly legal dispute, which has been ongoing for over three years and is likely to continue, referring network operators in Europe to the courts to reach an agreement on prices for network usage is not a sustainable solution. The proceedings underline the urgent need for Brussels to take action: EU regulation is necessary to ensure that disputes are settled swiftly and efficiently. The EU Commission's proposal for a binding dispute resolution mechanism is therefore the right approach. If Big Tech and network operators cannot agree on an appropriate price for data transport, an arbitrator, such as a regulatory authority, should intervene and make a decision. This would prevent network operators from constantly resorting to litigation to secure payment for their valuable services.
Conclusion
The court ruling is significant as it clarifies that data transport is indeed a valuable service that must be remunerated. However, current payments are too low to be considered a fair and reasonable price. As in all platform markets, prices should accurately reflect the actual value of the service provided. After all, telecom companies enable the business models of major Internet companies to thrive in the first place.
Network operators in Germany and Europe are investing billions to ensure that broadband and mobile networks are continuously expanded, ensuring efficient delivery of data from big tech companies to their users. First-class connectivity is essential as it underpins the business models shaping our digital future. If these companies rely on these valuable services to reach their customers effectively, it's reasonable to expect them to pay appropriately for them. After all, fair compensation for the use of essential infrastructure supports ongoing investment and innovation, benefiting both consumers and the digital ecosystem as a whole.
