A Telefonica store in Madrid. Some telecom companies have said they must be able to tap new revenue streams to help pay for broadband speed investments. Image Credit: Bloomberg

Leading European tele-coms companies want to levy significant charges on Google and other online content providers through an overhaul of the regime governing how data travel over the Internet.

Operators in Europe complain that they are contending with an explosion of data on their networks, much of which comes from US sites such as Google's YouTube video service. Companies led by France Telecom, Tele-fonica and Vodafone fav-our the introduction of wholesale charges based on the volume of data traffic passing through their networks, which could result in online content providers making substantial payments to get their video material to consumers.

The charging arrangements could result from reform of the so-called peering system, under which operators exchange traffic where their networks meet. Neelie Kroes, the European commissioner responsible for the EU's digital agenda, is concerned that telecoms companies are not investing enough to meet EU targets on improving broadband speeds.

The companies have said they must be able to tap new revenue streams to help pay for those broadband speed investments. One such stream could result from the network operators' interest in rewriting the peering agreements on data exchange.

Until 2008, the peering system functioned because companies pushed as much traffic towards other networks as they took on to their own infrastructure and therefore agreed to levy few or no charges on each other. This balance has been undermined by video traffic, much of which comes from the US as well as services such as the BBC's iPlayer.

Google and the BBC declined to comment.

The political pressure is mounting on Europe's leading telecoms companies to increase their spending on high-speed broadband networks.

Neelie Kroes, European commissioner responsible for the EU's digital agenda, told chief executives of the large telecoms companies in February that their inadequate investment plans meant her targets to increase broadband speeds across the EU were at serious risk of not being met.

The size of the investments necessary to upgrade Europe's telecoms networks is huge. McKinsey, the consulting firm, estimated last year that it could cost €300 billion to build superfast fixed-line broadband networks based on fibreoptic cables. It warned that this would be a financial stretch for the telecoms companies.

Europe's leading fixed-line and mobile network operators — led by Deutsche Telekom, France Telecom, Telecom Italia, Telefonica and Vodafone - are willing to increase their infrastructure spending. But they insist that in return they must be able to secure new revenue sources.

In a highly controversial move, they want to start charging online content providers, some of which have been unleashing a deluge of bandwidth-hungry video traffic on their networks. This traffic, which is spearheaded by Google's YouTube video-sharing service, is threatening to overwhelm the existing infrastructure of network operators.

In an indication of how this issue is increasingly a face-off between EU telecoms companies and US technology groups, the European network operators privately say Apple and Facebook are starting to become significant sources of video traffic.

The European operators are responding to the problem partly by preparing plans to charge online content providers for high quality delivery of their video material to consumers.

This idea is contentious because supporters of net neutrality — the idea that all web content should be treated equally — claim that charging content providers would create a two-tier Internet. The operators' plans are supposed to preserve the basic, "best effort" Internet, but there would also be a "fast lane" under which content providers could pay to secure prioritised delivery of their material to consumers.

The problem for the operators is that while some content providers may be willing to pay for prioritised delivery of their material, Google — a vocal exponent of net neutrality — is unlikely to be among them.

Eric Schmidt, Google's chairman, last year questioned why network operators should charge anyone other than their retail and business customers.

So some of the network operators — notably France Telecom and Telefonica - are also publicly calling for another reform that might enable them to secure significant payments from all content providers, including Google. The telecoms companies are seeking an overhaul of the peering system, which governs how data traffic is routed over the Internet. Since the commercial Internet's birth in the mid-1990s, large network operators have entered into peering agreements that stipulated how they would pass data traffic between each other at interconnection points.

The system functioned well because operators would push and receive similar amounts of traffic on behalf of their customers. As a result, little or no money changed hands between the operators.

Failing system

But the European telecoms companies now claim that the peering system is failing because data traffic flows are heavily skewed towards their networks.

They say their infrastructure is being flooded with YouTube traffic that is coming either directly from Google or from network operators that carry the US group's video material across the internet.

The chief executives of Deutsche Telekom, France Telecom, Telecom Italia, Telefonica and Vodafone first raised the case for changing the peering system in a private letter to Kroes last October.

France Telecom and Telefonica are now seeking new peering agreements between themselves and the online content providers that would enable the network operators to levy charges based on how much data traffic travels over their infrastructure.

—Financial Times