Financing the digital infrastructure: A challenge for Africa

Q: It may be necessary to strike a balance between the principle of “net neutrality” and the fact that most of the internet traffic is in fact monopolized by a few companies

The big techs use a vast amount of the world’s digital infrastructure but do not pay for its improvement. This needs to change if we want increased connection quality for users, faster deployment of newer technologies, and lower prices.

This debate is especially important in Africa to avoid an even bigger gap between the continent and America or China in key future technologies like AI, 5G, Metaverse and so on. “When a product is free, the product is you.” This maxim has long been used to explain (and warn about) the business model of Google and YouTube (Alphabet), Facebook and Instagram (Meta), and the Chinese platform TikTok, among various other social networks, apps, and content services. These corporations offer their services “for free” in exchange for the user providing them with huge amounts of personal data, ranging from geolocation to shopping habits, not to mention health, state of mind, and personal beliefs.

But that is not all. Much of the infrastructure needed to power these companies is also paid for by the user. Not only do consumers (voluntarily or involuntarily) entrust their data to these giants to monetize in the form of targeted advertising, but they also pay for the fibre optic networks and antennas (through phone bills and mobile top-ups) that are essential to the business of the tech giants. The same is true of streaming services such as Netflix and Spotify, which charge a monthly subscription to access their content, but are now venturing into pay-per-view territory.

Users pay twice: with their data and with their phone bill

Twenty years ago, telecom operators were among the world’s largest and most influential companies. This influence has diminished over the years, and they have become mere intermediaries who put users in touch with online service providers, despite efforts to add value to services (TV and streaming, cell phone insurance, video surveillance). This, along with growing competition in the Internet access market, explains why many of these companies have lost some of their stock market value over the last few decades, and why their profits have remained flat, compared with the explosive growth in sales, profits and influence of the major technology companies.

For years, major telecom operators, especially European operators such as Orange, Telefónica and D-Telekom, have been calling for large technology companies to take over part of the development of telecoms networks. This change would run counter to the principle of network neutrality on which the Internet has been based since its inception, and which is a central aspect of the business models of many digital companies.

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All of these companies are American and, to an increasing extent, Chinese, and this factor is becoming increasingly relevant in a geopolitical context. At the recent Mobile World Congress in Barcelona, Thierry Breton, Commissioner for Internal Market and Services at the European Commission, said we will have to find a financing model for the huge investments needed that respects and preserves the fundamental elements of our European acquis: the freedom of choice of the end user and the freedom to offer services under fair and competitive conditions.

It may be necessary to strike a balance between the principle of “net neutrality” and the fact that most of the internet traffic is in fact monopolized by a few companies, by introducing the idea that major technology companies should contribute financially to the maintenance, upgrading and expansion of these infrastructures. This is particularly true at a time when the development of web3, blockchain, 5G, 6G and the metaverse will require millions of dollars of investment in all countries that do not want to be left behind in the race to the global digital economy. If the big tech companies, which generate most of the data flowing through cables and antennas, were to pay for some of the hardware, this could have a major impact on the development of digital business models. Traditional telecom operators would be able to invest more, increase revenues and profits, or do both. Consumers, meanwhile, could benefit from the roll-out of higher-speed, higher-quality networks, lower phone bills, or a combination of both. Some of this expenditure would be passed on to businesses, who would have to bear the cost by raising prices, improving efficiency or reducing profits.

Geopolitics of the Internet: companies more powerful than countries

The titans of technology are a major source of power for the countries in which they operate, and charging these companies a toll for network use would generate tensions with nothing less than the USA and China. This is what happened recently when certain European countries, such as Spain and France, created a Google tax on the biggest digital advertising services to compensate for their tax practices of diverting part of their profits to lower-tax countries. Mr Trump has categorically rejected any measures that could harm American digital giants and has threatened to impose trade barriers on countries that pursue this strategy.

Only the European Union’s global economic influence can put this debate on the table. Even the most powerful members of the Union, such as Germany and France could not do it alone. However, it is one thing to raise the subject and quite another to get it done. Netflix’s CEO rejected the idea of European Commissioner Breton less than 24 hours after it was raised.

What does Internet speed have to do with economic development in Africa, Latin America and Southeast Asia? Quite a lot, actually. At present, no country or government has the means to act alone against companies such as Bytedance, Netflix and the GAFAMs. Each of these companies has a stock market valuation (and revenues) that exceed the GDP of most countries – and the integration systems in these regions do not currently have the authority or capacity of the EU to engage in a similar debate.

If the change the EU is apparently keen to promote does not materialize in some form, telecom companies will continue to bear the full cost of modernizing digital infrastructures. This will result in a slowdown in the deployment of innovative technologies, lower profits and weaker investment for regional telecom operators, higher prices and a deterioration in connection quality for users, or a combination of all these factors. In addition, this could lead to an increase in the digital divide between less developed countries and digital powers such as the USA and China, albeit on a more moderate scale. As it happens, these two powers are also the main exporters of today’s digital services and content.

Anza, Director of Communications, Latin America, IE University