Battle of the giants: Big telcos vs big techs

Who should pay the telecom networks investments’ bill? How big is this bill? Are those generating content and weighing on traffic investing adequately in this ecosystem?

These are the main questions behind the “fair share” tussle between big telcos and big techs. The operators argue that tech and internet companies are the major generators of traffic and content but that it is the operators who bear the burden of investing in networks.

The latter argue that they are already investing in datacenters, cables and content delivery networks, while operators have, in fact, reduced their investments and their capex-per-revenue ratio while growing revenues. They also claim that any extra charge would impact the whole ecosystem and be passed on to end-customers.

The controversy is global. For the second year in a row, it was one of the hottest topics debated at the Futurecom conference in São Paulo, as well as in telecom events from Mexico to Colombia. In Brazil, both sides are in a “war” of studies and analyses to corroborate their own arguments.

Marcos Ferrari, president of Brazilian telcos’ association Conexis, which represents the country’s biggest operators, talks to BNamericas about the latest episodes in the saga.

BNamericas: Operators claim to provide details of their investments, having reported 35bn reais (US$6.2bn) in capex last year, while big techs won't disclose their own. However, they have announced investments in datacenters, submarine cables and other network structures.

Ferrari: What is this number? How much exactly do they invest? We don’t know how much big techs invest. We in the sector are publicly traded companies and we disclose results, we hold calls with investors. These are investments that are broken down and made public.

Besides, saying that our revenue is increasing and our capex is declining doesn't reflect reality. The studies that were presented, that they [big tech associations] did based on our sector, are problematic.

A study that creates a model for projecting revenue and data usage over a 10-year period, using five observations and parameters, without considering events such as the pandemic and factors such as AI, has zero statistical value. There's a time distortion there.

So, if we're going to discuss numbers, let's discuss real numbers, not fictitious ones.

BNamericas: Some of Conexis' top members, Telefônica for example, actually have the goal of reducing the capex-to-revenue ratio. And sector revenues have actually increased. How do you assess this?

Ferrari: There's a cyclical process, which is another error in the model they present. It's a linear model for a sector that isn't linear. The sector is disruptive at various points in time, in short intervals.

What happens to the capex-to-revenue ratio? It fluctuates. When a new technology is launched, this ratio increases, reaching 21%, 22%, then it settles down and another cycle begins. Then it goes back to 20%, 21%, like in the midst of the 5G investments, and then it settles down to an average level of 18%, 19%. 

BNamericas: The group to which Brazil's largest operator belongs has a much lower goal than this, it aims to reduce it to 13% capex-to-revenue.

Ferrari: That's a specific and situational issue. We have to think from a structural point of view. When you take the sector's net revenue data, when you take capex by net revenue, it's not something linear. You can never create a linear model for 10 years ahead in time using five observations, as they do. It's a basic statistical concept.

BNamericas: The AIA [Alliance for the Open Internet, a Brazil-created association of big techs] claims that some figures presented in the Conexis study are redacted and not accessible for verification.

Ferrari: What we disclose is the data that can be disclosed, and that which wasn't disclosed was because there's a governance issue and the financial information involving each operator is sensitive.

But all the information was duly made available to the competent agencies, Anatel, and other bodies. We're being transparent in this debate.

BNamericas: There's an impasse regarding a so-called network fee for tech firms. Does the telecom sector have a plan B or plan C for this issue?

Ferrari: There's a clear problem here. There's a problem with investment in the network. Increasingly more resources are required to support the internet structure due to growing content and data that aren't generated by the operators.

We've put forward a proposal. That doesn't mean that there are no other proposals to consider. We're making a suggestion.

BNamericas: Right, but what if the suggestion isn't viable, as seems to be case? Do you have another proposal, another possible path?

Ferrari: Let's listen to the sectors. I think that the platforms can present proposals on this issue. Small providers can present proposals. The regulator can also indicate that it's leaning to go in another direction.

Brazilian legislation and regulation are insufficient for big techs. It's a modern problem, one in which we're a part. We're there to collaborate with the debate.

BNamericas: With respect to network fees, big techs claim there aren't many uses of it in the world and, among the few that do exist, as in the case of South Korea, there was an increase in prices for end consumers and companies fled. How do you see that?

Ferrari: In some markets where this model was adopted, we did have some problems, such as in South Korea. But not all of them. In Germany, Deutsche Telekom won a case against Meta in court over a fee.

In their latest open letter to the European Union, they put forward a proposal that's more or less exactly what we're proposing here, which is to let the parties define how to use and manage the network in a free and competitive manner. And if there's any conflict, only then would a regulator have the power to arbitrate in the issue. That's what we're advocating for.

[Editor's note: EU telecom carriers signed in 2023 a letter sent to the European Commission demanding tech firms pay network fees]