Europe’s ISPs hold faster broadband hostage

As the European Union looks at delivering faster broadband across its member states, a report by the chief executives of Alcatel-Lucent, Deutsche Telekom and Vivendi are asking that the EU allow ISPs to charge content providers for pushing bits across the ISPs’ pipes, according to a report in the Financial Times.

This is a fairly common theme in Europe and even in the U.S., although now with network neutrality laws almost on the books, we are getting closer to putting such schemes to dust. But if Europe okays charging content providers to help pay for the creation of faster broadband networks, it would create a foil that will be worth watching. Would such pricing hurt European startups and hinder innovation? Would the trade-off to faster broadband be worth it?

These questions may be rendered moot, as the EU still has yet to come up with a workable plan for financing its speed goals, which include ensuring that at least half of European homes have access to 100 Mbps of broadband by 2020. Even operators differ on how to charge for the content they deliver, with some pushing for a per-bit charge to content providers and others wanting to charge only for delivering high-quality content. From the FT:

European operators say they must find new revenue sources if they are to build high-speed broadband networks based on fibre optic cables, which McKinsey, the consulting firm, has estimated could cost €300bn ($421bn) across the EU.
Neelie Kroes, the European commissioner responsible for telecoms, in March called a meeting of leading executives from about 40 companies, including telecoms operators, equipment manufacturers and technology groups, amid concern her broadband targets are under threat.

As a result of that meeting, industry executives prepared these reports. So now we wait to see what Kroes recommends. Given that the Netherlands has already enshrined network neutrality principles into law, it seems like any plans to charge content providers more for certain traffic would run counter to the existing laws of at least one EU member.

Building out high-speed broadband is an expensive proposition — one that benefits individuals, businesses and society in the long run but that carries a high cost on the front end. Given the way the operators currently think about their business, the result is a game of dodging costs while trying to drive up demand incrementally and at a pace that is controlled. Unfortunately innovation doesn’t grow at a steady X percent a year. It tends to burst and then achieve a new plateau. In broadband those bursts tend to be tied directly to the speeds on offer. As broadband first hit the scene, it made way for services like Instant Messaging. Then as faster cable modems hit, we graduated to Facebook and downloading movies via iTunes (s aapl), and today with better-quality connections we have Netflix (s nflx) and Skype video.

So if Europe ties the development of faster broadband to higher costs for delivering content, it could curb the innovations that are generally associated with such speed bursts by making it more expensive for startups to offer new services. However, by investing in the network and then charging the consumer more for higher speeds, ISPs can recoup their costs while also ensuring that customers have a reason to buy a higher quality of service. Thankfully, in the U.S. we have a similar 100-Mbps goal for 2020, and we also have wireline network neutrality that would forbid ISPs’ charging content providers to deliver their bits. In little more than a decade maybe we’ll have answers on which model works best.