The European Commission has announced its intent to make large online platforms contribute to the cost of telecom networks in the form of a levy.  While well-intentioned, these levies could have lasting negative repercussions for startups, the global digital economy, and the internet as we know it today. Allied for Startups and its Members are concerned about how introducing these Fees will alter the entirety of the internet ecosystem and make startups less competitive. Here’s why: 

Introducing a network fee incentivises prejudicial traffic management: In 2016 the EU passed the Open Internet Regulation, which ensures that internet traffic is treated without discrimination, blocking, throttling, or prioritisation, which is called Net Neutrality. Net neutrality allows for all internet actors, big or small, to compete on the basis of equal bandwidth, making the internet an engine of innovation and free speech. 

Before this regulation, net neutrality violations were common practices, which meant that some internet content was blocked or slowed down by telecommunications companies. Let’s imagine you are watching your favorite online show and it suddenly stops or slows down because your hired internet service provider wants to get paid – or get paid more – for the content you are watching, even though you, as a consumer, have already paid for that content and access to the entirety of the internet. That’s a Net Neutrality violation.  

Solid enforcement of network fees by telecommunications companies, which are market-dominant players, could result in the refusal or throttling of content. This means that users would no longer be able to use services, creating a two-tiered internet in which only those who could pay the fees would be able to offer their services and products. This will disproportionately affect smaller players with fewer resources, such as startups, as well as consumers.

Thresholds discentivise growth and competition: The debate is currently focused on forcing large content providers (those of a certain size, based on their volume of traffic, turnover threshold, number of users, etc) to pay for network access, most likely disincentivizing startups from scaling and competing against incumbents. Creating such a scenario would cement the position of large content providers in the system, making it very difficult for smaller actors to compete against them.  In addition, this creates a slippery slope for Telcos to demand payment from all content producers, big or small, in the future. Startups and smaller economic actors will also be asked to pay for internet usage, significantly limiting their ability to innovate. 

Startup Investors will be discouraged by a two-tiered internet: The internet as we know it has allowed startups to compete against incumbents on the basis of their service or product, rather than the internet speed that is afforded to them. The threat of a two-tiered, or multi-tiered, internet will discourage investment in startups that could be affected either by a Telco demanding payment or a throttled internet, having a trickle-down effect on content creation, innovation, and competition. Just the threat of a two-tiered internet, will discourage investments into startups, especially those that offer services competing against incumbents. 

The Sender Pays model has failed in South Korea: South Korea was the first country to introduce a “Sending-Party-Network-Pays” model which means that Large Traffic Generators pay fees for the volume of traffic generated. Several reports pointed out that this system has led to a decrease in content production and internet service quality, a slower digital transformation, an increase in prices for consumers, and a decrease in investment in network infrastructure. In other words, the Sender Pays model has failed and it will not provide the investment returns telcos were hoping for. To this day this model is highly contested in Korea and several cases have been taken to the courts. 

Maintaining a Free and open Internet is essential to preserving the Internet as we know it. It has allowed for freedom of speech, innovation to thrive, a competitive market to flourish and for startups to be able to compete against incumbents  Despite the Commission’s insistence that Net Neutrality will not be affected by a potential Network Fee, imposing such a levy would have strong implications for startups and the entirety of the internet ecosystem and inevitably create an incentive for Net Neutrality violations. Network Fees are not only incompatible with a Free and Open Internet, but it is also likely that the effect of the levy will trickle down into every aspect of the Internet, discouraging growth, investment, and competition.