1、 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPOCTOBER 2022 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPsREPORT FOR INCOMPASDavid Abecassis,Michael Kende,Shahan Osman,Ryan Spence,Natalie ChoiCopyright 2022.Analysys Mason has pro

2、duced the information contained herein for INCOMPAS.The ownership,use and disclosure of this information are subject to the Commercial Terms contained in the contract between Analysys Mason and INCOMPAS.Analysys Mason LimitedNorth West Wing,Bush HouseAldwychLondon WC2B 4PJUKTel:+44(0)20 7395 Registe

3、red in England and Wales No.5177472 Disclaimer This report was commissioned by INCOMPAS,the internet and competitive networks association(formerly COMPTEL),a US-based industry trade association advocating for competition policy across all networks,and prepared independently by Analysys Mason.We are

4、grateful for the inputs and support provided by INCOMPAS,its members,and organizations which agreed to be interviewed as part of this study.Additional industry trade organizations involved in the distribution of the report include the Computer&Communications Industry Association(CCIA),the Asia Inter

5、net Coalition(AIC),DOT Europe,and the Korea Internet Corporations Association(K-Internet).The analysis contained in this document is the sole responsibility of Analysys Mason and does not necessarily reflect the views of INCOMPAS,CCIA,AIC,DOT Europe,K-Internet,their members,or other contributors to

6、the study.The data used in the analysis was obtained independently by Analysys Mason from publicly available sources.Abstract 4 Executive summary 51 Introduction 112 Content and application providers invest over USD120 billion annually in internet infrastructure 162.1 The internet is a network of ne

7、tworks that enables,and is reinforced by,a diverse ecosystem of stakeholders who interconnect with one another to create a fluid exchange of traffic 162.2 CAPs invest significant amounts in hosting,transport,and delivery networks 182.3 CAPs investment in internet infrastructure has a positive impact

8、 on CAPs,ISPs,and the wider economy and society 273 Investments by CAPs in transport and delivery networks save ISPs an estimated USD5.06.4 billion annually 303.1 Demand for connectivity is intrinsically linked to demand for online services,with strong synergies recognized by CAPs and ISPs through m

9、arketing partnerships 303.2 Traffic volumes drive a relatively small share of costs for ISPs,and technological advancements in network technology lead to continuous reductions in unit costs 323.3 Investments made by CAPs in transport and delivery networks help ISPs to mitigate costs 364 When evaluat

10、ing network usage fees,policy makers should consider regulatory objectives holistically and scrutinize arguments made in favor of their implementation 444.1 Calls for network usage fees have emerged in a few regions,and have largely focused on infrastructure deployment,while avoiding other topics su

11、ch as competition 444.2 Mandated traffic-related fees could have a detrimental impact on stakeholders across the internet ecosystem,which should be concerning to regulators 464.3 Calls for the regulation of traffic-related fees paid by CAPs to ISPs are not well substantiated,and these fees are unlik

12、ely to deliver the envisioned benefits 535 Implementing network usage fees could disrupt existing arrangements and reverse gains made in connectivity to date 58Annex A Background on interconnection on the internet and in traditional telecom services 60Annex B Methodology for estimating CAP infrastru

13、cture investment,and examples of how investments are evolving 62Annex C Context on the impact of traffic on fixed and mobile network costs and methodology for estimating 71 traffic-sensitive costs for fixed networksAnnex D Research on FTTP network investment 80Contents THE IMPACT OF TECH COMPANIES N

14、ETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs4This report is intended to bring a clear and evidence-based perspective to the global debate regarding whether network usage fees should be introduced.It explains the interdependence of various stakeholders in the internet ecosystem and the mutual

15、ly beneficial arrangements that they currently enter into for internet interconnection.In particular,we consider the relationship between content and application providers(CAPs)which provide online services and content that end users and other stakeholders demand,and the internet service providers(I

16、SPs)which provide residential and business end users with the means to connect to the internet from their homes,offices,and mobile devices.We examine the implications of mandating that CAPs pay ISPs network usage fees linked to traffic flows between their networks in order to reach ISPs end users,an

17、d we conclude that such a mandate would be harmful to end users and the global internet ecosystem.We first highlight the significant investments that CAPs make in global internet infrastructure(over and above their investments in content,innovation,research,and development).Contrary to the assertion

18、s that CAPs are not investing in internet network infrastructure,we find that in the last decade,CAPs invested USD883 billion in digital infrastructure.This builds upon analysis conducted since 2014,and we find that between 2018 and 2021,CAPs increased their annual spend by over 50%compared to the 2

19、014 to 2017 period,investing over USD120 billion in digital infrastructure,including hosting,transport,and delivery networks.These investments not only support the delivery of CAPs own services,but also support the ISPs business.The combination of investments by CAPs and ISPs as well as freely negot

20、iated interconnection on the internet has evolved over time to support increased traffic demand from end users.Investments made by CAPs to bring traffic closer to end users improve quality of experience for broadband users and save ISPs over USD5 billion each year in network and transit fees.The vol

21、untary agreements between CAPs and ISPs ensure that growing demand from end users can be handled sustainably without increasing network costs over time.This framework ensures that ISPs do not shoulder all the cost of digital infrastructure,while enabling end users to gain access to diverse and high-

22、quality online services.We find that the imposition of network usage fees would risk creating barriers to entry and growth for smaller and new CAPs.In broadband markets,mandated network usage fees also risk increasing costs for many ISPs,by reducing CAPs incentives to invest in infrastructure and pr

23、ocesses that help optimize traffic delivery for ISPs,such as caching content closer to end users.Higher cost of traffic delivery for CAPs and higher network costs for ISPs may translate into lower quality of experience for end users.Higher costs for ISPs would heighten barriers to entry and growth f

24、or smaller and new ISPs,reducing long-term ISP competition and investment in broadband.Consequently,end users are likely to face higher ISP prices,less ISP choice,and reduced quality of broadband services,while also receiving diminished quality of experience for online services and less innovation a

25、nd choice online.Current proposals for mandating network usage fees rely on arguments that falter under scrutiny.Proponents of these fees tend to mischaracterize the relationship between traffic delivery and cost,while understating ongoing investments by CAPs in internet infrastructure,as well as pr

26、ivate-and public-sector investments in ISP networks.Some arguments made in favor of network usage fees also appear to be based on an inadequate understanding of internet interconnection.If introduced,network usage fees would result in a shift away from the voluntary interconnection regime that conti

27、nues to drive the rapid growth and impact of the internet.Policy makers should therefore scrutinize any network usage fee proposals carefully,while taking a holistic perspective on the potential harmful impact of those fees on the wider internet ecosystem.Abstract THE IMPACT OF TECH COMPANIES NETWOR

28、K INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs5The internet is now more accessible than ever to more people around the world.The growth of the internet and internet-enabled services and goods has resulted in consumers,businesses,and governments conducting more daily activities online.The internet t

29、hus serves as the backbone for work,education,entertainment,and communication,and has proven to be essential,particularly during the Covid-19 lockdowns.The internet is a network of networks,which must all be connected(directly or indirectly)to one another to enable traffic delivery from any source t

30、o any destination around the globe.Its evolution has been driven by a combination of competition,collaboration,and innovation by all the stakeholders in the value chain.These players include:Internet service providers(ISPs),which provide residential and business end users the means to connect to the

31、 internet from their homes,offices,and mobile devices.Tier 1 global carriers,which invest and operate large-scale transmission networks that move content around the world and connect together the many networks that make up the internet.A wide variety of other companies that provide technology,servic

32、es,and content to end users and other stakeholders through internet access and are referred to as content and application providers(CAPs).This includes cloud providers which invest in and operate data centers,peering and caching infrastructure,and increasingly their own backbone networks around the

33、world.Some stakeholders,including large,vertically integrated ISPs,have argued that growing internet traffic creates a cost burden on ISPs,which they argue is unsustainable.A central part of the argument put forward by these stakeholders is the notion that CAPs are benefiting from the network withou

34、t investing in network infrastructure.As such,they call for policy makers to mandate that CAPs pay ISPs network usage fees that would be based on the amount of traffic delivered to end users.This report demonstrates that:1.CAPs are investing significant amounts in internet infrastructure(above and b

35、eyond their investments in content and applications for end users),and these infrastructure investments increase over time,reaching nearly USD900 billion in total over the period 201121.2.Network-related costs for ISPs have remained stable over time even while traffic volumes have grown significantl

36、y.Data traffic only drives a small share of ISP costs,which are further mitigated by the investments that CAPs make in internet infrastructure.3.The arguments put forth by proponents of network usage fees disregard ongoing trends in access network investment,and demonstrate an inadequate understandi

37、ng of internet interconnection.4.If introduced,network usage fees would disrupt existing interconnection arrangements,as well as incentives for stakeholders in the ecosystem to continue investing to deliver a high quality of experience for end users.Policy makers should consider the potential impact

38、 of network usage fees holistically when evaluating regulatory proposals that would mandate the introduction of such fees.CAPs invest over USD120 billion annually in internet infrastructure CAPs focus their internet infrastructure investments on three main clusters hosting(i.e.data centers),transpor

39、t(i.e.submarine and terrestrial cables),and delivery(i.e.peering and caching).This infrastructure spans tens of thousands of miles around the globe and is critical to deliver online content and services close to ISPs for the benefit of end users online experience.Executive summaryOver the period 201

40、121,CAPs spent USD883 billion on digital infrastructure including hosting,transport,and delivery networks,leading to positive impacts on end users,and broader economic benefits.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs62001821HostingTransportDelive

41、ryUSD billion 0.9 2.2 3.12.7 3.6 4.5 33.229.675.569.7120.1112.5CAPs are investing heavily in hosting,transport,and delivery networks.In 201821,CAPs increased their annual investment by 50%over the previous period(201417)and spent on average USD120 billion each year on this infrastructure.As a result

42、 of the annual investment amounts shown in the chart below over various periods,CAPs have spent a total of USD883 billion on infrastructure in these three main clusters from 2011 to 2021.FIGURE 0.1:AVERAGE ANNUAL INVESTMENT MADE BY CAPs SOURCE:ANALYSYS MASON BASED ON VARIOUS SOURCES,2014,1 2018,2 20

43、22)CAPs investment in internet infrastructure increases reliability and quality of experience for end users.More broadly,we highlight the many studies that have shown how these investments drive overall internet penetration and usage and,as a result,generate macroeconomic benefits through digitaliza

44、tion.These include increased GDP,job creation,and environmental benefits,as well as better societal outcomes(e.g.education,health,access to remote work)from the consumption of online services.3 Policy makers have also recognized the important role that the internet can play in unlocking these benefi

45、ts.4Investments by CAPs in transport and delivery networks have a positive impact on the economics of ISPs CAP investments to bring content closer to ISPs and end users generate benefits for end users in terms of better quality of experience,but also benefit ISPs in terms As a result of scale,techno

46、logy improvements,and investments across the value chain,strong growth in traffic has not led to materially increased costs for ISPs.Investments made by CAPs to bring traffic closer to end users improve quality of experience and save ISPs between USD5.0 billion and USD6.4 billion each year.Voluntary

47、 agreements between CAPs and ISPs ensure that growing demand from end users can be handled sustainably without increasing network costs over time.1 Analysys Mason(2014),Investment in networks,facilities and equipment by content and application providers.Available at https:/ Analysys Mason(2018),Infr

48、astructure investment by online service providers.Available at https:/ Deloitte(2014),Economic and social benefits of expanding internet access.Available at https:/ For example,see the digital targets for 2030 as set out by the European Commission,available at https:/ec.europa.eu/info/strategy/prior

49、ities-2019-2024/europe-fit-digital-age/europes-digital-decade-digital-targets-2030_en THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs7of cost avoidance or cost savings.For example,CAPs invest in large infrastructure projects like submarine cables,thus reducing the

50、need for ISPs to invest in these systems.CAPs also use their global scale to deliver traffic broadly in internet exchange points(IXPs)and other peering locations across the world,reducing the need for ISPs to purchase transit or connect internationally to CAP home bases.CAPs also invest in on-net ca

51、ches that are embedded inside ISP networks,which reduces the backbone and backhaul capacity that ISPs require to deliver content to end users.We quantify CAP investments that contribute to ISP savings in two areas:CAP investments in embedded caching in ISP networks(at core/metro/aggregation nodes),a

52、nd long-distance transport and peering locations(both public and private),which contribute to the widespread availability of on-shore peering in ISP home markets.We estimate that this enables ISPs to reduce capacity-related costs by between USD5.0 billion and USD6.4 billion each year,globally.The ce

53、ntral argument for network usage fees relies on two premises:that CAPs are responsible for large and growing traffic volumes,and that large growth in traffic drives much higher network costs.CAPs deliver traffic to ISPs when end users demand such content,and as demand for online services grows so do

54、es the demand for faster and generally more expensive broadband services that ISPs sell.A small number of large CAPs and content delivery networks(CDNs)deliver a large share of traffic demanded by end users,in part because they are very successful with end users,and in part because of the cost and q

55、uality benefits for all CAPs,large and small,to use their services due to their widely distributed CDNs that bring traffic either close to or directly into ISPs networks.Importantly,our analysis shows that the rapid increase in global traffic5 delivered over fixed and mobile access networks is corre

56、lated with a stable annual spend by telecom operators on their networks,as shown in the figure below.FIGURE 0.2:GROWTH IN TRAFFIC DELIVERED OVER FIXED AND MOBILE ACCESS NETWORKS,AND EVOLUTION OF NETWORK-RELATED TELECOM OPERATOR COSTS FROM 2018 TO 2021 SOURCE:ANALYSYS MASON RESEARCH,ANALYSYS MASON,20

57、22)5 Traffic refers to the flow of data through networks over time,and bandwidth determines the amount of traffic that can flow through at a given time.Networks are provisioned to provide a given bandwidth rather than a given level of traffic,and in many modern networks,capacity significantly exceed

58、s bandwidth demand.2000400050000300000500060002019USD billionExabytes per annum201820202021Network opex+total capex(USD billion)Total traffic(Exabytes)THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs8Moreover,we find that traffic volumes drive

59、a relatively small share of ISPs costs.ISPs are in the middle of a once-in-a-generation transition to fiber investments are being made by the public and private sectors,which affect the topology/architecture of their networks,and therefore the magnitude of network costs and their sensitivity to traf

60、fic.As ISPs increasingly transition to fiber and achieve more efficient architectures through more advanced technology and equipment,their costs are expected to become even less sensitive to traffic in future.Thus,network costs are expected to continue to remain relatively stable in the future while

61、 traffic volumes grow,as fixed networks move toward fiber-based architectures,and as mobile technologies evolve to enable operators to add network capacity more efficiently,further demonstrating the unreasonableness of any permanent transfer of mandated payments from CAPs to ISPs.Policy makers shoul

62、d consider regulatory objectives holistically and scrutinize arguments in favor of network usage fees Proposals largely call for fees to be transferred from CAPs to ISPs on the basis of traffic for internet interconnection,one argument being that this mirrors voice termination rates in the telephony

63、 market.These mechanisms have worked for voice services as it is easy to identify the party that originated the call.For internet traffic,however,it is usually difficult to identify the originator of a stream of traffic,not least because CAPs send traffic in response to an end-user request.There als

64、o would be the challenge of deciding what the rate should be,where it is imposed,which entities are charged,how to reconcile these charges with non-discrimination and net-neutrality policies,and how to limit ISPs ability to exercise their termination monopoly.These challenges could result in excessi

65、ve rates,leading to further regulation of quality of service,in addition to higher costs for end users.Some of these concerns have been raised in the past,for instance,when European regulators rejected similar proposals to regulate interconnection that emerged a decade ago.6Proponents of network usa

66、ge fees suggest that ISPs would invest more in connectivity and accelerate broadband deployment if they were able to charge CAPs for traffic.However,these arguments appear to disregard the large ongoing commitments made by ISPs themselves and by policy makers and other investors to roll out full-fib

67、er networks throughout Europe,achieve Internet for All in the US,and via other initiatives that are already underway for deploying broadband networks around the globe to unserved and underserved areas.Moreover,current proposals have not elaborated on mechanisms for ensuring ISPs use such fees on net

68、work investments that help to improve connectivity and end-user experience.In this context,it seems unlikely that network usage fees would result in ISPs investing any more in networks.Instead,already large and vertically integrated ISPs would likely enjoy higher profits and shareholder returns at t

69、he expense of end users,who would face higher prices and a lower quality of experience.Implementing network usage fees could disrupt existing interconnection arrangements and investment dynamics,and reverse gains made in connectivity to dateNetwork usage fees would lead to regulatory and competition

70、 issues that policy makers already understand well:they have rejected network usage fees for the internet in the past,and have worked to mitigate similar issues in telephony markets for the last 20 years.Beyond the lack of justification for network usage fees,policy makers should also consider the i

71、mpact of network usage fees on the whole internet ecosystem.Network usage fees would effectively slow or reverse some of the advances in interconnection,peering,and caching that have evolved through voluntary,mutually beneficial arrangements that have aided ISPs and end users by lowering their costs

72、 and improving their service experience,respectively.6 BEREC(2012),BERECs comments on the ETNO proposal for ITU/WCIT or similar initiatives along these lines.Available at https:/www.berec.europa.eu/sites/default/files/files/document_register_store/2012/11/BoR%2812%29120rev.1_BEREC_Statement_on_ITR_2

73、012.11.14.pdf THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs9The introduction of network usage fees would disrupt existing interconnection arrangements.This is likely to affect incentives for both CAPs and ISPs to continue making investments that deliver ongoing i

74、mprovements in quality of experience for end users.Network usage fees would raise costs for all CAPs,not just larger ones,resulting in barriers to entry and expansion for online content and service providers.Reduced incentives for CAPs to continue investing in infrastructure and processes that optim

75、ize traffic delivery will result in higher costs for ISPs as well,constraining resources for organic investment in ISP networks.Moreover,fees proportional to traffic paid directly to ISPs would favor larger ISPs,which may distort competition in the ISP market.As a result of these effects,end users a

76、re likely to face higher prices,reduced quality,and less choice in the ISP market,while also receiving a lower quality of experience for online services.South Korea is currently the only country where the regulator have mandated payments from domestic CAPs and ISPs.The added costs imposed by network

77、 usage fees have led to higher transit costs,diverging from other countries in the region.As a result,Korean CAPs have found it challenging to host content domestically due to higher costs and have either moved overseas or have become less competitive.7 Likewise,service quality is affected as the ov

78、erall average latency experienced by users in South Korea is the highest among Organization for Economic Co-operation and Development countries.8 Importantly,the introduction of network usage fees elsewhere could disincentivize CAPs or CDNs from deploying caches domestically in those other countries

79、 as well,leading to similar negative effects as those seen in South Korea.Demand for online services and demand for broadband access are inherently linked.The impact of introducing network usage fees,and the resulting impact on end users,could be long lasting and harmful for both markets.Lower consu

80、mption of online services by individuals and businesses could also result in further negative effects in terms of slower digitalization and economic growth.ConclusionBased on current proposals,network usage fees are unlikely to be beneficial to end users.These proposals are supported by arguments th

81、at mischaracterize the relationship between traffic delivery and cost,and that appear to be based on an inadequate understanding of internet interconnection.If implemented,network usage fees would result in a fundamental shift away from the voluntary collaboration that has sustained the rapid growth

82、 of the internet thus far,and negatively affect a wide range of stakeholders.Policy makers and regulators should scrutinize any proposal on network usage fees and take a holistic perspective on the potential harmful impact of those fees on the internet ecosystem.7 See https:/carnegieendowment.org/20

83、21/08/17/afterword-korea-s-challenge-to-standard-internet-interconnection-model-pub-851668 OECD(2022),Broadband networks of the future.Available at https:/www.oecd-ilibrary.org/docserver/755e2d0c-en.pdf?expires=1659966485&id=id&accname=guest&checksum=85B0F3FB66FF03752FF4111E10BF8E51 THE IMPACT OF TE

84、CH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs10InfographicInfrastructure investments in hosting,transport,and delivery are made in addition to other CAP investments in content,applications,and services for end users;the availability of these online services also drives demand fo

85、r broadband access services from internet service providers(ISPs).Mandated network usage fees could degrade network quality,decrease competition,and harm consumersContent and application providers(CAPs)invest extensively in global internet network infrastructureThe current voluntary interconnection

86、regime incentivizes CAPs and ISPs toinvest in efficient,cost-effective traffic delivery to provide quality experiences for end usersNetwork usage fees would impose high interconnection costs for a non-existent problem,and they would disrupt incentives,investment,and competitionIf introduced,network

87、usage fees could have detrimental effects on multiple stakeholder typesTotal trafficUSD billionUSD billionExabytesNetwork opex+total capex Growth in traffic delivered over fixed and mobile access networks,and evolution of network-related telecom operator costs from 2018 to 2021In 201821,network-rela

88、ted ISP costs increased by 3%in total over three years,whilst network traffic increased by over 160%in that same period,showing that ISP networks can handle significant traffic growth at modest incremental cost.CAP network investments that bring content closer to end users also help ISPs to manage c

89、osts,saving ISPs USD5.06.4 billion per annum.30002500200002018 2019 2020 202003000200010000Impacts on ISPs include:Reduced ability to offer high-quality online experiencesReduced long-term ISP competition and investmentImpacts on CAPs include:Fewer resources to invest in conten

90、t and infrastructureHigher barrier to entry for smaller/local CAPsImpacts on end users(consumers and businesses)include:Higher ISP prices,less ISP choice,and reduced quality of broadband services(e.g.latency)Reduced quality of service from CAPs and fewer new CAPs to choose from in the future10030248

91、001920202021TransportHostingDeliveryTotal spend by CAPs on internet infrastructure over various periods since 2011 CAP investment in 201121 was USD883 billion.In the past four years(201821),CAPs invested USD120 billion per annum.These investments help to reduce ISPs

92、costs,while optimizing performance for end users.883 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs111 Introduction9 Analysys Mason(2020),IP interconnection on the internet:a white paper.Available at https:/ The change in growth rate from 201819 to 201920 was an e

93、xception to this trend,due to Covid-19.11 WIK-Consult(2014),The economic impact of internet traffic growth on network operators.Available at https:/www.wik.org/uploads/media/Google_Two-Sided_Mkts.pdf12 Described further in another report published by Analysys Mason.See https:/ investments in infrast

94、ructure are crucial for making traffic delivery more efficient for ISPs.This contributes significantly to end users online experience(e.g.by reducing congestion or lowering latency),and also helps ISPs to manage their own network costs.After three decades of accelerating growth and constant change,t

95、he internet continues to grow and evolve,most visibly in terms of the services and content that are accessible online,but also in terms of its technical architecture.Changes to the fabric of the internet,from protocol standards and interconnection agreements to hard infrastructure like fiber and wir

96、eless networks,submarine cables,and data centers,are driven by a combination of competition,collaboration,and innovation by all the stakeholders in the value chain.These stakeholders include internet service providers(ISPs)that provide residential and business end users with the means to connect to

97、the internet from their homes,offices,or mobile devices;so-called Tier 1 global carriers,which invest and operate large-scale transmission networks that move content around the world,and connect together the many networks that make up the internet;and also a wide variety of other companies that prov

98、ide technology,services,and content to end users and other stakeholders.These providers include content delivery networks(CDNs)and cloud providers,which invest in and operate data centers,peering and caching infrastructure,and increasingly their own backbone networks around the world.We refer to the

99、se as content and application providers(CAPs),and they are sometimes also referred to as online service providers(OSPs)or edge providers.To date,the internet as we know it has been able to grow and thrive through mutually beneficial co-operation between these stakeholders,largely enabled by voluntar

100、y interconnection arrangements that have enabled a thriving and competitive peering market.9 As shown in Figure 1.1,while internet traffic continues to grow annually as more users gain access to the internet,and users spend more time online on increasingly bandwidth-intensive content,the rate of tra

101、ffic growth is declining each year for both fixed and mobile.10 Moreover,due to advancements in network technology and equipment,unit costs of traffic delivery have historically decreased at rates that matched or exceeded increases in traffic per user.11 The majority of internet traffic is delivered

102、 over fixed access networks as opposed to mobile access networks,and the rate of traffic growth is faster in emerging markets and slower in more mature markets.It is worth noting that while traffic is easier to measure,bandwidth is usually a more accurate determinant of whether networks are constrai

103、ned or not,and at present,actual peak traffic on broadband networks remains significantly below the theoretical speed and capacity of access networks.12 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs12Exabytes20000400030002000212020FixedMobil

104、eMbit/s16UHDstreaming 1008Kwall TV51UHD IPvideo500UHD VRVideoGaming/VRNear termFuture17VRstreaming 30Cloudgaming167HD VRFIGURE 1.1:GROWTH IN END-USER DEMAND FOR TRAFFIC DELIVERED OVER FIXED AND MOBILE ACCESS NETWORKS13 SOURCE:ANALYSYS MASON RESEARCH14,15As the internet evolves,so does the growth of

105、bandwidth-intensive content and applications including video and gaming.New applications such as virtual reality that can be used for online education,telemedicine,industrial activities,workplace use and training,tourism,and many other use cases,could emerge to deliver new and improved online experi

106、ences for end users.Undoubtedly,as fiber and 5G networks become ubiquitous,use cases that we cannot anticipate today will emerge to take advantage of greater speeds and capacity in networks (see Figure 1.2).1613 Defined by Analysys Mason Research as total annual internet data for fixed access and to

107、tal cellular data traffic for mobile access.14 Analysys Mason Research(2021),Wireless network data traffic:worldwide trends and forecasts 20212026.Available at https:/ Analysys Mason Research(2021),Fixed network data traffic:worldwide trends and forecasts 20202026.Available at https:/ Cisco(2020),Ci

108、sco Annual Internet Report(20182023)White Paper.Available at https:/https:/ 1.2:ILLUSTRATIVE REQUIREMENT FOR A RANGE OF APPLICATIONS,IN MBIT/S SOURCE:ANALYSYS MASON BASED ON CISCO ANNUAL INTERNET REPORT WHITE PAPER(20182023)THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAN

109、D ISPs13In response to the growth in end-user demand for online content and applications,particularly during the Covid-19 pandemic,some stakeholders have raised concerns about whether this continued expansion will be sustainable or may place an unreasonable cost burden on some parts of the value cha

110、in,in particular ISPs.Policy makers also are concerned with ensuring that state-of-the-art connectivity can reach remote or underserved communities,where there may not be an attractive business case for investors to deploy next-generation broadband infrastructure.However,the Covid-19 pandemic has de

111、monstrated the ability of the network to handle increases in traffic,and recent data shows that internet traffic growth has continued to decline following the spike in traffic growth during the pandemic.17As a result,a number of recent policy initiatives have been launched to promote broadband infra

112、structure deployment and increased consumer connectivity,to ensure that access to and benefits of the internet are widespread and sustainable.These initiatives include,for example,setting clear objectives and timelines for fiber network deployments,implementing public financing mechanisms to support

113、 network deployment in unserved or underserved areas,subsidizing costs for disadvantaged consumers,requiring wholesale/open access to infrastructure to enable further deployment and competitive choice,and including coverage obligations for radio spectrum licenses.Some stakeholders,primarily large,ve

114、rtically integrated ISPs active in domestic infrastructure and internet access provision,but also in transit and carriage on the internet backbone,argue both that the cost burden they shoulder due to growing traffic from a few CAPs is unsustainable,and that CAPs should contribute not only to those t

115、raffic-sensitive costs,but also to the roll-out of infrastructure including fiber to the home and 5G networks.18 This has led to calls for CAPs to pay network usage fees to ISPs,dependent on the amount of traffic end users request,to help pay for ISPs networks.These calls have been heard across vari

116、ous regions,including South Korea,19 Europe,20 and the US.21,22,23 Smaller telecom operators,meanwhile,including European mobile virtual network operators(MVNOs),have pointed out that suggested network investment contributions could disrupt peering and transit markets that are currently functioning

117、well,have detrimental effects on competition in telecom markets,and also negatively affect end users.24 In some ways,the argument for network usage fees would be similar to asserting that car manufacturers should pay for road construction and maintenance or,as others have pointed out,that electricit

118、y providers should receive a share of the value added in all sectors of the economy that use electricity(such as the profits of an electric vehicle manufacturer),even though consumers are already paying for the electricity they demand.25 It could also be said that these analogies understate the posi

119、tion taken by proponents of network usage fees as they fail to acknowledge the contributions that CAPs are already making,both within their own networks and in partnership with ISPs,to reduce the burden on local ISP networks and to improve quality of experience 17 TeleGeography(2021),Global internet

120、 traffic and capacity return to regularly scheduled programming.Available at https:/ Some of the arguments revolve around the notion that CAPs are responsible for paying for ISPs infrastructure,and/or capturing an excessive share of the value created on the internet at the expense of ISPs.19 Wik Con

121、sult(2022),Competitive conditions on transit and peering markets.Available at:https:/www.bundesnetzagentur.de/EN/Areas/Telecommunications/Companies/Digitisation/Peering/download.pdf?_blob=publicationFile&v=120 Axon Partners Group(2022),Europes internet ecosystem:socio-economic benefits of a fairer b

122、alance between tech giants and telecom operators.Available at https:/etno.eu/downloads/reports/europes%20internet%20ecosystem.%20socio-economic%20benefits%20of%20a%20fairer%20balance%20between%20tech%20giants%20and%20telecom%20operators%20by%20axon%20for%20etno.pdf21 Forbes(2022),The growing global

123、movement for fair cost recovery on broadband networks.Available at https:/ 22 Newsweek(2022),FCC Commissioner Brendan Carr Opinion:Ending big techs free ride.Available at https:/ 23 In addition,in the US some are calling for CAPs to pay directly into the Universal Service Fund,although CAPs currentl

124、y pay USF charges when purchasing interstate telecom service in the provision of their CAP service in the US.See USTelecom Blog(2022),25 years later,its time for a FAIR Update to Universal Service.Available at https:/ustelecom.org/25-years-later-its-time-for-a-fair-update-to-universal-service/24 Tec

125、hRadar(2022),MVNOs fear they will be collateral damage of EU plans to make big tech pay for networks.Available at https:/ Williamson,B.,Communication Chambers(2022),An internet traffic tax would harm Europes digital transformation.Available at http:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT O

126、N THE ECONOMICS OF BROADBAND ISPs14for end users.In fact,CAPs invest significantly in infrastructure,including data centers,submarine and terrestrial networks,and peering and caching infrastructure in nearly every country in the world,and increasingly within countries to bring content closer to ISPs

127、.As a result,ISPs benefit from CAPs investments to reliably deliver their service to end users and to provide a quality online experience.The investments that CAPs make in infrastructure are in addition to their investments in the development of online services(content and applications)that end user

128、s enjoy.These online services are a clear driver of the demand for ISPs own profitable connectivity services,including faster,fiber-or 5G-based connectivity.26 Although end users might more readily associate the investments that CAPs make in content and applications with their quality of experience

129、of those online services,CAP investments in infrastructure are in fact crucial for making traffic delivery more efficient for ISPs,which contributes significantly to end users online experience(e.g.by reducing congestion or lowering latency),and also helps ISPs to manage their own network costs.As s

130、uch,infrastructure investments by CAPs contribute significantly to supporting end-user demand for both the online services provided by CAPs,as well as the connectivity services provided by ISPs.The potential impact of network usage fees on the broader internet ecosystem cannot be ignored,and has bee

131、n considered in the past.European regulators have rejected previous attempts by telecom operators to move from the voluntary interconnection regime to a sending-party-network-pays model,in which CAPs would essentially pay network usage fees to ISPs.Regulators argued that moving to this payment model

132、 would be a dramatic change,and that benefits delivered by the voluntary interconnection regime,including innovation,growth in connectivity,and development of new content and applications,could be put at risk.27 While internet traffic has increased significantly in the past decade,the voluntary inte

133、rconnection regime remains a fundamental building block for maintaining a global and interoperable internet,based on co-operation between stakeholders operating within a competitive environment.In this report,we aim to bring perspective to this debate and contribute to evidence-based policy making t

134、o ensure that digital infrastructure continues to attract investment,is deployed to all communities,and also preserves what has made a success of the internet over the last 30 years.We approach this in three main steps:In Section 2,we explain how the internet has evolved on the basis of collaboratio

135、n between different stakeholders,how CAPs continue to invest in internet infrastructure and how they have continued to contribute to the growth of its economic and social impact.We also quantify the scale of investment in infrastructure by CAPs around the world and regionally,demonstrating their sig

136、nificant contribution to the global network ecosystem specifically,we find that from 2018 to 2021,CAPs increased their investment to a total of USD120 billion annually;since 2011,CAPs have invested USD883 billion into internet infrastructure that ISPs and end users rely on for a quality internet exp

137、erience.In Section 3,we explore how ISPs costs respond to increasing data traffic and quantify how investments from CAPs in hosting,transport,and delivery network infrastructure are helping ISPs mitigate this cost impact through their own investment,and through commercially negotiated,and differenti

138、ated,partnerships with ISPs specifically,we find that traffic volumes drive a relatively small share of ISPs costs in fixed ISP networks,traffic-sensitive core and backhaul costs are just 20%of all network costs,or 10%of retail revenue growth in costs is also not proportional to growth in traffic vo

139、lumes,as ISP costs and investment in their access networks have also remained relatively stable,even as traffic volumes have grown significantly we also find that CAPs bring traffic closer to end users(and ISPs),generating between USD5.0 billion and USD6.4 billion in annual savings for ISPs.26 End u

140、sers typically purchase connectivity services from ISPs in order to access the online services provided by CAPs.27 BEREC(2012),BERECs comments on the ETNO proposal for ITU/WCIT or similar initiatives along these lines.Available at https:/www.berec.europa.eu/sites/default/files/files/document_registe

141、r_store/2012/11/BoR%2812%29120rev.1_BEREC_Statement_on_ITR_2012.11.14.pdf THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs15 In Section 4,we summarize and evaluate proposals currently in the public domain that are in favor of network usage fees,bring in additional p

142、erspectives,and describe the potential impact of network usage fees beyond ISPs profits and returns(which has been the focus so far)we find that network usage fees,if implemented,are likely to be detrimental for nearly all stakeholders in the internet ecosystem,and would result in reduced competitio

143、n and higher costs,contrary to regulators and policy makers objectives.A final conclusion section(Section 5)then ties findings from the rest of the report together to conclude that the assertions made in favor of network usage fees thus far are not well substantiated and could result in detrimental

144、effects for interconnection,and the broader internet ecosystem and its future prospects.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs162 Content and application providers invest over USD120 billion annually in internet infrastructure 28 This is often called the a

145、ny-to-any principle.There are currently more than 100 000 unique autonomous networks with their own autonomous system number(ASN)that enable them to share routing information for interconnecting and exchanging traffic.29 Resilience was one of the core objectives of the very early developments of the

146、 internet,under the auspices of the United States Defense Advanced Research Projects Agency(DARPA).The internet is made up of many interconnected networks that facilitate the exchange of traffic.This enables end users to communicate and gain access to content and applications from CAPs.The exchange

147、of traffic is based on voluntarily negotiated agreements between these stakeholders,on the basis of a pervasive collaborative ethos.Section 2.1 describes the interconnection agreements that are necessary for the internet to function,and explains how the evolution of voluntary interconnection arrange

148、ments has contributed to the growth of the internet.In order to deliver their content and applications to meet end-user demand,CAPs invest significant amounts in hosting,transport,and delivery networks,as discussed in Section 2.2.These investments have enabled end users to gain access to more conten

149、t and services in an increasingly efficient manner.CAPs have continued to increase their investment,and we estimate that on average over the four years between 2018 and 2021,this investment exceeded USD120 billion annually.Based on our discussions and research,this trend appears to be continuing,fue

150、ling increased adoption,engagement,and usage of online services,including cloud services.Investments made by CAPs primarily help to improve their service delivery,and the quality of experience that end users enjoy.These investments by CAPs complement investments made by other stakeholders,such as IS

151、Ps,to enable the functioning of the internet as we know it.There is growing empirical evidence that the internet infrastructure built and maintained by all stakeholders,including CAPs,generates wider benefits for society.These effects are introduced and discussed in Section 2.3.2.1 The internet is a

152、 network of networks that enables,and is reinforced by,a diverse ecosystem of stakeholders who interconnect with one another to create a fluid exchange of traffic The agreements under which traffic is exchanged between networks emerged in the 1990s,as the internet began to commercialize and develop

153、from its early roots in academia and research.The internet used the same telecom infrastructure used for voice calls at the time.However,while voice interconnection agreements were then heavily regulated,internet interconnection was commercially negotiated,and not regulated.While internet interconne

154、ction arrangements have evolved from a small number of networks in the early days of commercialization to address globalization and the emergence of new high-bandwidth content,as well as new services and business models,they are still based on voluntary,commercial negotiations.Proposals to introduce

155、 interconnection regulations today that would require CAPs to pay ISPs are not necessary and will have impacts on all stakeholders,affecting the underlying success factors of the internet and adversely impacting consumer welfare.2.1.1 Interconnection agreements are needed for the internet to functio

156、n,and are typically negotiated voluntarily between stakeholdersInterconnection arrangements are needed to solve a basic engineering challenge how to exchange traffic between any two networks within a very large universe of autonomous systems that may not have a direct relationship,in the most effici

157、ent way possible,with a sufficient degree of resilience.29The basic forms of interconnection which emerged are known as peering and transit each plays a necessary role,and together they are sufficient to meet the ever-changing needs of the global internet (see Annex A for more details).Interconnecti

158、on is critical for ISPs that are selling to end users the ability toInterconnection arrangements are mutually beneficial:a content provider can deliver its content to customers who request it,with largely the same cost and quality irrespective of the ISP chosen by the end user;this ISP,in turn,is ab

159、le to offer high-quality access to content to its subscribers.HighlightsThe networks that make up the internet must all be connected to one another in some way to enable traffic to be delivered from any source to any destination.28 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF

160、BROADBAND ISPs17connect to 100 000 other unique autonomous networks around the world,and to the online content and applications these networks host.30In the early days,the interconnection arrangements primarily relied on a hierarchy of internet providers.At the top of the hierarchy were backbones th

161、at had national or international network infrastructure.They exchanged traffic using peering,whereby two providers agree to exchange their own traffic(including that of their customers)with one another,using best efforts,i.e.with no guarantee of quality.Peering was between peers,that is to say,provi

162、ders with similar networks and traffic profiles,and was almost exclusively without payment(this was also known as settlement-free peering).The backbones at the top of the hierarchy,in turn,sold transit to smaller providers further down the hierarchy,including smaller backbones,retail ISPs,and CAPs.T

163、hese transit arrangements enabled the buyers to access the whole of the internet.Peering was the wholesale input that enabled backbones to sell transit.The earliest content was largely text based and not real time,and thus competition in transit was largely based on price,which was kept affordable t

164、hrough settlement-free peering,and not based on quality,which could not be guaranteed in any case given that transit is based on best-efforts peering as an input.As the internet has grown and services have changed,there have been several significant shifts in interconnection arrangements all within

165、the framework of commercially negotiated voluntary agreements.The first of these is the rise of interconnection hubs,including internet exchange points(IXPs),where many networks can exchange traffic in a cost-efficient manner with many other peers,facilitated by increased international capacity thro

166、ugh more submarine and terrestrial routes.These served to flatten the hierarchy,by enabling Tier 2 ISPs and CAPs to invest or lease capacity to extend their network to other countries and to directly peer with global networks,without relying on transit.The second,described in the next sub-section,in

167、volves changes in the volume of traffic and the introduction of new business models that extended the relationships between ISPs and CAPs.2.1.2 Co-operation between CAPs and ISPs has evolved over time,and has supported the increasingly efficient delivery of traffic to end users at scaleInterconnecti

168、on agreements have evolved over time,due to,for example,the increase in demand for high-bandwidth content such as video and gaming.This increase raised two issues with traffic exchange and delivery.First,the cost of delivering bandwidth-intensive content was a concern,as backbones and ISPs objected

169、to receiving more traffic from content providers than they sent,at a higher cost of network capacity.And second,the quality of delivery became a greater concern as more delay-sensitive services(e.g.video calling,gaming,and some forms of streaming)became mainstream and CAPs business models became mor

170、e sensitive to the quality of experience delivered to end users.Transit relationships are not conducive to addressing these concerns:transit providers offer access to the whole internet,and offer a largely undifferentiated connectivity product that is not managed for specific quality indicators like

171、 latency.Peering offers more help to mitigate these concerns and can be complemented by caching static content31 in distributed servers that can serve content to end users when requested.In this way,content only needs to be sent once to the cache,instead of separately each time the content is reques

172、ted,lowering the cost and reducing any possible congestion from delivering the content repeatedly over that part of the network.32 CDNs have emerged as a technical solution that combines peering and caching,and are operated in house by the largest CAPs and as commercial services by companies such as

173、 Akamai,Cloudflare,as well as Google and Amazon through their cloud platforms(Google Cloud and AWS).Peering and caching,including through commercial CDNs,have led to a distribution of interconnection and traffic delivery to many more locations,at scale.This now enables CAPs and ISPs to manage their

174、costs and 30 As we explain further below,the investments that CAPs are making in network infrastructure are improving how the ISPs connect to other networks and online content,which helps ISPs in the delivery of their service to end users and lowers their costs.31 Refers to content that does not cha

175、nge depending on when it is accessed or by whom(e.g.streaming video from providers such as YouTube,TikTok,Netflix,among others).32 An Analysys Mason report shows that the use of the Netflix Open Connect CDN reduced transport costs for ISPs by USD1 billion in 2021.Analysys Mason(2022),Netflixs Open C

176、onnect program and codec optimisation helped ISPs save over USD1 billion globally in 2021.Available at https:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs18maintain high levels of quality of experience for their shared end users.CAPs(including CDNs)began to con

177、nect to IXPs,where any ISP could peer and access their content.The process of networks peering and exchanging traffic with each other over IXPs is referred to as public peering.As the amount of traffic in the shared IXP switch grows,CAPs and ISPs may move to private peering,involving a direct connec

178、tion between peering partners,which enables the partners to allocate capacity to ensure high-quality traffic exchange.Private peering often takes place in the same data center as the IXP.Further growth in traffic can result in a cache being embedded directly into the ISPs network,closer to the end u

179、sers(this is also known as embedded or on-net caching).Each step described above from connecting to an IXP to enable public peering,to embedding caches within ISP networks,involves increased investment on the part of the CAPs in order to lower the cost for ISPs to access content,and also to lower la

180、tency and improve end-user experience.33These evolving arrangements are mutually beneficial:a content provider can deliver its content to customers who request it,with largely the same cost and quality irrespective of the ISP chosen by the end user;this ISP,in turn,is able to offer high-quality acce

181、ss to content to its subscribers while achieving cost savings as a result of CAP investments to bring traffic closer to end users.As a result,these arrangements largely remain settlement free.In some instances,ISPs and CAPs have engaged in negotiations and agreed on paid peering arrangements in whic

182、h the CAP pays the ISP.Overall,these voluntary interconnection arrangements contribute to the success of the internet in several ways.34 The network of networks that results from interconnection is a core design principle determined by the founders of the internet,who valued openness and decentraliz

183、ation.As a result,networks themselves decide how and with whom to interconnect.This in turn demonstrates the openness and flexibility of the internet to networks regardless of location or technology,as long as they adopt common internet protocols,helping the internet to successfully grow and adapt t

184、o new users and new uses.The value of openness and decentralization can be seen in how interconnection agreements have evolved over time in order to deliver high-bandwidth content such as video and gaming in a mutually beneficial arrangement between CAPs and ISPs.These agreements were tested by the

185、increase of traffic on end users domestic connections during the Covid-19 lockdowns and the resulting increase in traffic for work,study,and entertainment.During that time,ISPs and CAPs worked closely together.Streaming video companies reduced their resolution while networks adapted,and both CAPs an

186、d ISPs together enabled users to increase their home internet use.The flexibility that CAPs and ISPs exercise in determining their preferred interconnection arrangements with different partners demonstrates how the internet,through voluntary negotiated agreements between stakeholders,has been able t

187、o grow to improve consumer welfare with a wide variety of online choices,quality delivery,and low prices.2.2 CAPs invest significant amounts in hosting,transport,and delivery networks33 CAPs and ISPs often work collaboratively to ensure that the needs of CAPs,ISPs,and end users are considered and ba

188、lanced appropriately as interconnection evolves and investments related thereto are made.34 Analysys Mason(2021),Study on the internets Technical Success Factors.Available at https:/ 2018 to 2021,CAPs increased their levels of investment in hosting,transport,and delivery infrastructure to a total of

189、 USD120 billion annually,which is more than a 50%increase in investment from the 201417 timeframe.From 2011 to 2021,total cumulative investment by CAPs into internet infrastructure reached USD883 billion.CAPs are carrying and paying for an increasing proportion of international traffic,which otherwi

190、se would be a cost that telecom carriers would have to incur.CAPs are also adopting a variety of strategies to improve their service delivery,bringing content closer to ISPs,while also contributing to investment in these areas,both directly and indirectly.THE IMPACT OF TECH COMPANIES NETWORK INVESTM

191、ENT ON THE ECONOMICS OF BROADBAND ISPs19The internet value chain reflects the collaboration that exists in the context of interconnection,discussed above in Section 2.1,and more broadly in the financing,deployment,and operation of the infrastructure that underpins the internet.As a basic process,whe

192、n end users demand online information(content and applications from CAPs),this information has to flow from its origin,for example a data center somewhere in the world,connected to a CAP network(hosting infrastructure)to destinations(end-user devices,connected to an ISPs network).To go from one to t

193、he other,content must move through a combination of network links on submarine and terrestrial cables(transport infrastructure).Content then reaches the edge of the content providers network(or that of its CDN provider)and is handed over to the ISP network through delivery infrastructure,effectively

194、 routers and servers that can send content across the border of the ISPs network,or even serve it from caches within the ISPs network.These links in the internet value chain are illustrated below in Figure 2.1.Initial data request sent from end usersDelivery of requested data to end usersPrivate and

195、 public peering locationsCore andbackhaul networkAccess networks/last mileDomestic ISP network International CAP network End-userdevicesTerrestrialand submarinecables HostingTransportDeliveryData centersCachesFIGURE 2.1:INTERNET VALUE CHAIN SPLIT INTO THREE CLUSTERS OF CAP INVESTMENT:HOSTING,TRANSPO

196、RT,AND DELIVERY SOURCE:ANALYSYS MASON,2022 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs202.2.1 From 2018 to 2021,CAPs spent over USD120 billion on average each year on internet infrastructure,reaching over USD480 billion in total over the four-year periodReflect

197、ing the view of the internet value chain presented in Figure 2.1 above,investments by CAPs are estimated in this report in three separate clusters of infrastructure:hosting(data centers and cloud),transport(cables transporting content),and delivery(peering and caching).We estimated investment in eac

198、h of these clusters in reports published in 2014(covering 201113),35 and in 2018(covering 201417).36 During these timeframes,CAPs have continued to increase their investments in internet infrastructure,with annual spend between 2018 and 2021 reaching over three times the annual spend from 201113.Thi

199、s increase is driven by the growing demand for internet services from both new and existing users,along with the increasing demand for bandwidth-intensive content like video,gaming,and cloud services.This investment includes direct spend by CAPs on these infrastructure items as part of capital expen

200、diture(capex),37 as well as indirect investment in the form of payments to third-party service providers(e.g.co-location data-center providers)that build the infrastructure used by CAPs.38 From 2018 to 2021,CAPs increased their levels of investment across all three of these areas to a total of USD12

201、0 billion annually.This is more than a 50%increase in investment from the 201417 timeframe.As shown in Figure 2.2,hosting(i.e.data centers)continues to be the most significant area where CAPs make investments in infrastructure,accounting for 94%of investment since 2017 as CAPs continue to build thei

202、r own data centers,while also investing indirectly in co-location at third-party data centers.35 Analysys Mason(2014),Investment in networks,facilities and equipment by content and application providers.Available at https:/ In Annex B,we set forth our methodology for the estimated investments and pr

203、ovide further detail.37 Capex typically refers to capital expenditure made to purchase assets that would generate income over the long term.38 We estimate indirect investment by CAPs on the basis of the price they pay these third-party service providers for services,which therefore includes an allow

204、ance for the risk and cost of capital that these data-center and backbone providers incur.2001821HostingTransportDeliveryUSD billion 0.9 2.2 3.12.7 3.6 4.5 33.229.675.569.7120.1112.5FIGURE 2.2:AVERAGE ANNUAL INVESTMENT MADE BY CAPs SOURCE:ANALYSYS MASON,VARIOUS SOURCES,2022 THE IMPACT OF

205、TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs21North AmericaLatin AmericaMiddle Eastand AfricaAsiaPacificEurope20009214USD billionFIGURE 2.3:AVERAGE ANNUAL INVESTMENT BY REGION SOURCE:ANALYSYS MASON,VARIOUS SOURCES,2022Investment by region is s

206、hown in Figure 2.3 below.North America continues to attract the largest regional share of CAP investment,39 closely followed by AsiaPacific,which has seen the most significant growth,and then Europe.Despite significant investments in countries such as Spain and Ireland,40 Europes relatively low41 cl

207、oud adoption has led to somewhat slower growth compared to other regions.42 Meanwhile,there has been a rise in investment in Latin America as well as the Middle East and Africa,although these regions still only account for a small share of global investment.From 2011 to 2021,total cumulative investm

208、ent by CAPs into internet infrastructure reached USD883 billion in total over the 11-year period,as shown in Figure 2.5 below.DirectIndirect59261679327USD billion2001821FIGURE 2.4:AVERAGE DIRECT AND INDIRECT ANNUAL INVESTMENT SOURCE:ANALYSYS MASON,VARIOUS SOURCES,20222001121201

209、113HostingTransportDelivery3USD billionFIGURE 2.5:CUMULATIVE INVESTMENT BY CAPs SINCE 2011 BY INFRASTRUCTURE CLUSTER SOURCE:ANALYSYS MASON,202239 North America is defined as the US and Canada;Mexico is included in Latin America.40 Synergy Research Group(2022),Pipeline of Over 300 New Hype

210、rscale Data Centers Drives Healthy Growth Forecasts.Available at https:/ Data Centre Magazine(2022),Europe is having a reckoning with the cloud.Available at https:/ The European Commission is actively planning to stimulate growth in cloud adoption and digitization of public and private services,thro

211、ugh its Digital Decade/Digital Compass plans.See https:/ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/europes-digital-decade-digital-targets-2030_enFigure 2.4 below shows that growth has occurred in both direct and indirect investment,as a result of growing demand for online

212、 services by end users.The majority of CAP spend continues to be direct investment in their own infrastructure,as CAPs continue to self-supply their growing needs and control their infrastructure to manage long-term costs and performance.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMI

213、CS OF BROADBAND ISPs222.2.2 CAP spend on infrastructure across all clusters continues to increase,to support growth in the consumption and quality of content and cloud servicesCAPs have increased their investments across the three infrastructure clusters of hosting,transport,and delivery,with the ai

214、m of improving the provision of content and cloud services to individuals and businesses.More data centers are being deployed,and this deployment is also occurring in a growing number of regions across the globe,which increases the amount of storage and computing power available,while reducing the d

215、istance of these facilities to users.Growth in the number and size of data centers has led to an increase in spend on long-distance networks,in order to link these data centers to each other and to delivery networks.Meanwhile,spend on delivery networks has also increased,moving content ever closer t

216、o end users to improve the quality of experience while managing cost efficiency.Hosting continues to be the most significant area of CAP investment in infrastructure,accounting for over USD110 billion in annual spend between 2018 and 2021A large share of investment into hosting infrastructure is in

217、self-built hyperscale data centers.These facilities exhibit significant power and cost efficiency,reliability,and performance benefits compared to traditional commercial data centers.Some co-location providers have also started to build facilities to meet the requirements of specific CAPs and,in cer

218、tain situations,are doing this through investment vehicles/joint ventures.CAPs are increasing the amount that they spend on co-location space in data centers from third-party providers,as this leasing of space allows CAPs to grow capacity in new markets at a much faster rate,and with lower upfront c

219、apital costs.Smaller enterprises are increasingly favoring cloud services from CAPs as opposed to the more traditional leasing of co-location space directly from third-party data-center providers.Third-party co-location data center providers have therefore started to develop closer relationships wit

220、h CAPs as these CAPs need increasing amounts of space for content,as well as cloud services that serve enterprises.Synergy Research Group estimates that hyperscale operators were using up to 660 data-center facilities across all regions as of Q3 2021,43 compared to roughly 390 at the end of 2017.44

221、Many of these were located in North America,45 but there has been significant growth in AsiaPacific where there is an increased demand for online services.AsiaPacific has the largest amount of cloud availability zones when including cloud operators with headquarters in China(Alibaba and Tencent),and

222、 there is now a similar number of cloud availability zones in North America and AsiaPacific from cloud operators with headquarters in the US(Amazon,Microsoft,Google).This is illustrated in Figure 2.6.EuropeNorthAmericaUS-headquarteredcloud providersChina-headquarteredcloud providersLatin AmericaAsia

223、PacificMiddle East and Africa788860FIGURE 2.6:NUMBER OF CLOUD AVAILABILITY ZONES BY REGION FOR MAJOR US-HEADQUARTERED(AMAZON,MICROSOFT AND GOOGLE)AND CHINA-HEADQUARTERED(ALIBABA AND TENCENT)CLOUD PROVIDERS AS OF 2022 SOURCE:COMPANY WEBSITES,ANALYSYS MASON,202243 Synergy Research Group(202

224、2),Hyperscale Data Center Count Grows to 659 ByteDance Joins the Leading Group.Available at https:/ Synergy Research Group(2017),Hyperscale Data Center Count Approaches the 400 Mark;US Still Dominates.Available at https:/ Synergy Research Group(2022),Pipeline of Over 300 New Hyperscale Data Centers

225、Drives Healthy Growth Forecasts.Available at https:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs23CAP spending in transport infrastructure has grown,driven by increasingly direct investment,to USD4.5 billion per annum on average since 2018CAPs continue to inves

226、t in transport infrastructure,including terrestrial or submarine cables,primarily to allow traffic to flow between data centers.The overall demand for international bandwidth has continued to grow and CAPs have continued to account for an increasing share of this bandwidth,as shown in Figure 2.7.As

227、a result of these investments,CAPs are carrying and paying for an increasing proportion of international traffic,which otherwise would be a cost that telecom carriers would have to incur.Historically,investment by CAPs in terrestrial cables has primarily been through indirect means,typically by leas

228、ing access to dark fiber based on 10-year to 20-year agreements.Where dark fiber is not available,CAPs have tended to lease capacity from backbone providers.Indirect investment in terrestrial cables continues to grow as CAPs can rapidly expand capacity and have greater certainty on cost over time.In

229、 certain areas,CAPs have also started to invest more directly in terrestrial fiber deployment,usually in partnership with a backbone provider,in the interest of improving connectivity.47In recent years,large CAPs have begun to invest more directly in new submarine cable systems,either as part of a c

230、onsortium of investors or,in a smaller number of cases,as anchor investors,where the CAP puts up 100%of the initial capital for the cable.There were 19 submarine cables with CAP ownership stakes that were announced as of 2018,and a further 14 cables with CAP ownership stakes announced after 2018,48

231、bringing the total number of announced cables in which CAPs have invested to 33 as of 2022,as shown in Figure 2.8.This figure includes cables expected to become ready for service as far out as 2024.The ownership stakes that CAPs take in new cables has increased,and CAPs also provide capacity to thir

232、d parties on cables that are majority owned.CAPs are investing in regions that have historically had less access to international connectivity and are generally deploying submarine cables that are increasingly technologically advanced.These developments are discussed further in Annex B.20

233、20202021Tbit/s69%fromCAPs0FIGURE 2.7:TOTAL INTERNATIONAL BANDWIDTH USED SOURCE:TELEGEOGRAPHY,46 202246 TeleGeography(2022),Content Providers Binge on Global Bandwidth.Available at https:/ See Annex B for examples of other investments and efforts made by CAPs that help to improve connectiv

234、ity outside of the hosting,transport,and delivery clusters.48 The previous Analysys Mason report states that 22 submarine cables had been announced as of 2018;this number has since reduced to 19 cables,as the HKA and HK-G cables have been withdrawn and Bay to Bay Express was reconfigured as the CAP-

235、1 cable system in 2020.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs24AmazonMetaGoogleMicrosoftAnnounced as of 2018Announced after 2018BifrostCurieCAP-1UnityPLCNEchoJupiterFASTERNCPTopazBifrostCAP-1UnityPLCNJupiterEchoIndigo-CentralIndigo-West2AfricaRamanApricotB

236、lueNSCCC-2AmitiGrace HopperMAREATannatMalbecJuniorEquianoFirminaMonetDunantHavfrueAPGSJCSJC-2JGA-SJGA-SFASTERNCPTopazFIGURE 2.8:ANNOUNCED SUBMARINE CABLES IN WHICH CAPs HAVE INVESTED,AS OF 2022 SOURCE:ANALYSYS MASON BASED ON INFORMATION FROM PRESS ARTICLES,TELEGEOGRAPHY,49 202249 TeleGeography(2022)

237、,Submarine Cable Map.Available at https:/ IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs25CAPs continue to develop delivery networks to bring services closer to end users,through border gateways in IXPs,private peering facilities,and caches inside ISP networksAfter mo

238、ving through long-distance transport networks,content needs to flow through ISPs networks to reach end users.This typically occurs through public peering at IXPs or through private peering,which as mentioned in Section 2.1 is a commercially negotiated arrangement between two or more parties.In some

239、countries,including the US and Germany,peering tends to be concentrated in several regional hubs.50,51 New IXPs continue to emerge across different regions,and established IXPs are also expanding their presence,both within52 and across53 regions.Other recent initiatives that IXPs have been developin

240、g to improve interconnection are discussed further in Annex B.As part of the delivery infrastructure cluster,CAPs typically invest in both public and private peering locations.54 This can either be directly through investment in technology like routers and ports for access,or indirectly by paying fe

241、es to internet exchanges for interconnection.The number of CAP points of presence at both public and private facilities has grown since 2018.The number of public peering points has increased by 80%since 2018 as CAPs expand their footprint to interconnect with more networks,and the number of faciliti

242、es at which CAPs peer privately has increased by 35%over the same period,55 as shown in Figure 2.9.While the number of public peering locations is greater than the number for private peering,the volume of traffic across private peering is much higher than public peering.Equinix reports that 90%of al

243、l traffic peered across its platforms is exchanged via private peering,with the remaining 10%of traffic exchanged via public peering.56 Number of non-unique locations used for peering20182022PublicPrivate+80%+35%55474610961975FIGURE 2.9:NUMBER OF GLOBAL INTERCONNECTION LOCATIONS USED FOR PUBLIC AND

244、PRIVATE PEERING,FOR TEN57 MAJOR CAPs SOURCE:PEERINGDB,58 ANALYSYS MASON,202250 DrPeering International,The Evolution of the U.S.internet Peering Ecosystem.Available at https:/ WIK-Consult(2022),Competitive conditions on transit and peering markets.Available at https:/www.bundesnetzagentur.de/EN/Area

245、s/Telecommunications/Companies/Digitisation/Peering/download.pdf;jsessionid=4F82FD1F00D8D8D2DA9A50CE6BCDBAED?_blob=publicationFile&v=152 For example,IX.br is a system of over 30 metropolitan interconnection points in Brazil.53 For example,LINX and DE-CIX are IXPs based in Europe,but that have since

246、expanded to other global regions.54 Many public peering points overlap in larger metros.55 As reported by PeeringDB;many private peering locations are located in data centers where both parties in a private arrangement are located.56 Equinix(2022),How to Solve for Peering Progression.Available at ht

247、tps:/ The ten CAPs analyzed are Google,Meta,Microsoft,Amazon,Yahoo,Netflix,Apple,eBay,Tencent,Baidu.58 Accessed July 2022;see https:/ IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs26Beyond investing in peering,CAPs also invest in CDNs to deliver traffic more efficient

248、ly.CDN infrastructure involves caching content closer to end users to minimize the distance needed to deliver content,which can improve the quality of experience and reduce costs.This caching of content can take place at peering locations but is increasingly also taking place in embedded(on-net)cach

249、es placed within ISP networks to get ever closer to end users.CDNs are starting to play a more significant role due to the increased demand for bandwidth-intensive content such as video,gaming,and the growth of cloud services;storing content such as videos or software updates in caches closer to end

250、 users (as shown in Figure 2.10);and reducing the cost and latency of delivery.CAPs rely on a combination of:commercial CDN providers(e.g.Akamai)cloud CDNs offered by public cloud providers(e.g.Amazon CloudFront operated by Amazon Web Services,Google Cloud CDN)their own infrastructure.Embedded(on-ne

251、t)caches within ISP networks are expanding,both for CAPs own use(e.g.Netflix Open Connect,59 Google Global Cache,Meta Edge Appliance)and for third-party customers(e.g.Akamai,Googles Media CDN).60 The CDN space is dynamic and innovative.CAPs and technology vendors are developing new standards,includi

252、ng Open Caching as part of the Streaming Video Alliance to develop interoperable caching,61 as described further in Annex B.Elsewhere,the development of CDN footprints are also being driven by more regional or domestic players such as IXPs.For example,in Brazil,the OpenCDN initiative has been launch

253、ed,which involves inviting CDN providers to deploy caches at various IX.br locations that can be shared by multiple ISPs at each location.This would make it easier for customers of the thousands of ISPs in Brazil to benefit from CDN services,while allowing CDN providers to deploy their cache footpri

254、nts more efficiently.62 As demonstrated above and described further in Annex B,developments in both the peering and caching ecosystems continue to take place,driven by multiple stakeholder groups.As a result,CAPs are adopting a variety of strategies to improve their service delivery,bringing content

255、 closer to ISPs,while also contributing to investment in these areas,both directly and indirectly.The increase in the number of peering locations and caches and closer proximity to ISPs also help ISPs manage,control,and optimize their network costs,as discussed further in Section 3.Route used to del

256、iver contentDatacentersContent delivery with cachingEnduserCacheContent delivery without cachingDatacentersDelivered with everyend-user requestDelivered once/refreshed periodicallyEnduserFIGURE 2.10:CONCEPT OF CONTENT DELIVERY WITH AND WITHOUT CACHING SOURCE:ANALYSYS MASON,202259 Netflix.Open Connec

257、t.Available at https:/ Google Cloud(2022),Introducing Media CDNthe modern extensible platform for delivering immersive experiences.Available at https:/ Streaming Video Alliance.What is Open Caching.Available at https:/opencaching.streamingvideoalliance.org/what-is-open-caching/62 OpenCDN,About OpenC

258、DN.Available at https:/opencdn.nic.br/en/about/THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs272.3 CAPs investment in internet infrastructure has a positive impact on CAPs,ISPs,and the wider economy and society CAPs investment in internet infrastructure improves s

259、ervice performance,increases the reliability of CAP services,and improves CAPs own economics.This,in turn,has been shown by various studies to drive overall internet penetration and usage,generating macroeconomic benefits through digitalization.Examples of the wider benefits of CAPs investment in in

260、frastructure are summarized in Figure 2.11.FIGURE 2.11:EXAMPLES OF THE WIDER BENEFITS OF CAPs INVESTMENT IN INFRASTRUCTURE SOURCE:ANALYSYS MASON,COPENHAGEN ECONOMICS,DELOITTE,GOOGLE,RTI INTERNATIONAL,ITU,FROST&SULLIVAN,COMPILED IN 2022DescriptionIncreased GDP Benefit A study by Copenhagen Economics

261、estimates that every USD1 of direct investment by Google in Europe can create USD1.35 of GDP through induced and indirect effects63 RTI estimates that Metas expenditure on data centers from 2017 to 2019 contributed USD18.6 billion to the US GDP,64 while investment in Marea and two other submarine ca

262、bles with landing dates after 2024 are expected to bring USD82.8 billion to Europes GDP on an annual basis65 Analysys Mason estimates that the benefits to sub-Saharan Africa stemming from Metas connectivity initiatives in that region will likely exceed USD50 billion in GDP over 202024,66 and also es

263、timates that Googles USD2 billion investment in AsiaPacific network infrastructure from 2010 to 2020 has created an estimated USD430 billion in additional GDP for the region67 HighlightsThe investments that CAPs make in infrastructure enable greater levels of internet adoption and usage,which in tur

264、n result in a variety of macroeconomic benefits.CAP investments in transport and delivery networks reduce costs for ISPs,as content is brought and stored closer to end users,potentially lowering ISPs prices to end users.These investments also reduce the time taken for content to reach the end user a

265、nd help make the internet more reliable and stable during peak traffic.63 Copenhagen Economics(2019),Googles Hyperscale Data Centers and Infrastructure Ecosystem in Europe.Available at https:/ RTI International(2020),The Impact of Facebook U.S.Data Center Fleet.Available at https:/www.rti.org/public

266、ation/impact-facebooks-us-data-center-fleet-2017-2019/fulltext.pdf65 RTI International(2021),Economic Impact of Metas Subsea Cable Investments in Europe.Available at https:/www.rti.org/publication/economic-impact-metas-subsea-cable-investments-europe/fulltext.pdf66 Analysys Mason(2020),The Impact of

267、 Facebooks Connectivity Initiatives in Sub-Saharan Africa.Available at https:/ Analysys Mason(2020),Economic Impact of Googles APAC Network Infrastructure.Available at https:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs28DescriptionJob creation Resource efficie

268、nt/more environmentally friendly Benefit Frost&Sullivan indicates that due to investment by CAPs,direct jobs are created in construction,maintenance,and management of network infrastructure,68 while ITU indicates that indirect job creation is prominent in industries that can benefit most from improv

269、ed internet connectivity and digitalization,namely IT,financial and professional services,and manufacturing69 RTI International states that Metas investments in data centers in 201016 contributed to the creation of 60 100 jobs70 Copenhagen Economics indicates that Googles investment in data centers

270、in Europe has created 6600 jobs per annum on average from 2007 to 2017.By 2021,Googles data-center investment will have supported a total of EUR15.2 billion of economic activity across Europe(200721),corresponding to 13 100 jobs per annum on average.71 Direct jobs include positions in data-center ma

271、nagement,mechanical and electrical maintenance,water management,and hardware operations,and jobs as systems technicians;indirect effects include jobs in security,catering,cleaning,and in the construction and supply industries72 Africa Practice and Genesis Analytics estimate that Equiano,a submarine

272、cable in which Google has invested,will indirectly create 1.6 million jobs in Nigeria,180 000 in South Africa and 21 000 in Namibia between 2022 and 202573 Analysys Mason estimates that Googles infrastructure investments have created an estimated 1.1 million additional jobs in AsiaPacific since 2010

273、,and 401 000 jobs in Japan from investments in 2021,growing to an estimated 739 000 by 202674 A report published by Google suggests that the delivery of data to and from cloud customers relies on CAP network infrastructure.Google estimates that a typical company migrating to the cloud would achieve

274、a 6887%reduction in energy on computing,and also a similar reduction in carbon emissions75 Cloud services are based on shared infrastructure and computing resources which are utilized across multiple cloud customers,thereby maximizing the utility of resources 68 Frost&Sullivan(2010),Report on Consul

275、tancy Study on Issues Relating to the Landing of Submarine Cables in Hong Kong.Available at https:/ ITU(2012),The Impact of Broadband on the Economy.Available at https:/www.itu.int/ITU-D/treg/broadband/ITU-BB-Reports_Impact-of-Broadband-on-the-Economy.pdf70 RTI International(2018),The Impact of Face

276、books U.S.Data Center Fleet.Available at https:/www.rti.org/sites/default/files/facebook_data_centers_2018.pdf71 Copenhagen Economics(2019),https:/ Copenhagen Economics(2018),European data centres How Googles digital infrastructure investment is supporting sustainable growth in Europe.Available at h

277、ttps:/ Africa Practice and Genesis Analytics(2021),Equiano Subsea Cable:Regional Economic Impact Assessment.Available at https:/ Analysys Mason(2022),Economic Impact of Googles APAC Network Infrastructure2022 Update-focus on Japan.Available at https:/ Google(2012),Google Apps:Energy Efficiency in th

278、e Cloud.Available at https:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs29DescriptionOther Benefit A study by Deloitte shows that Metas investment in CAP infrastructure results in increased availability of information,services,and digital tools,especially in de

279、veloping countries,and can improve learning(14%of internet users take at least one online course per annum);financial inclusion(a 1%increase in internet take-up should increase the number of banked people by 0.42%);and can reduce the number of deaths due to greater access to healthcare information f

280、or patients and practitioners(a 1%increase in internet take-up should reduce deaths by 0.15%on an annual basis)76 In addition,infrastructure investments by CAPs also more immediately impact the economics of broadband ISP networks in several ways:Investments that CAPs make in caches and CDNs generate

281、 benefits for the internet ecosystem by reducing the costs of delivering traffic for ISPs,as content is stored closer to end users,which in competitive broadband markets typically results in lower prices for end users.These investments also reduce the time taken for content to reach the end user and

282、 help make the internet more reliable and stable during peak traffic.CAPs spend on transport networks,which is increasingly taking place through direct investment,effectively substitutes what ISPs would otherwise have to spend,and potentially also exceeds the amount that ISPs would otherwise spend t

283、hemselves.The impact of CAP investment on costs for ISPs is considered in more detail in Section 3.76 Deloitte(2014),Value of Connectivity,economic and social benefits of expanding internet access.Available at https:/ THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs

284、303 Investments by CAPs in transport and delivery networks save ISPs an estimated USD5.06.4 billion annually Investments by CAPs in infrastructure are an essential part of the overall internet value chain,and are growing more rapidly,albeit from a lower base,than investments by ISPs in their network

285、s.In some cases,these CAP investments are incremental to those that ISPs would make(e.g.data-center and other hosting investments);in other cases,however,CAPs invest in transport networks that ISPs would have had to build otherwise.This section describes the impact of CAPs investment in infrastructu

286、re on ISPs.ISPs and other proponents of network usage fees are advocating that CAPs should compensate ISPs for the traffic-sensitive part of ISPs cost base and their related investments in their access networks to end users.However,these arguments tend to ignore the role of end-user choice in determ

287、ining the level of traffic demand,as well as the interdependence of ISP and CAP services and investments in the global internet infrastructure.In Section 3.1,we discuss the impact of CAP investment on ISPs as first and foremost an impact on demand:consumers and businesses connect to the internet to

288、make use of the wide range of online services,applications,and associated content.As such,the demand for online services and the demand for broadband are inherently linked,and both are ultimately driven by end-user choices.In Section 3.2,we address the question of ISPs costs,to ascertain the scale o

289、f expenditure that is sensitive to traffic.We show that these costs,while significant,represent a relatively limited share of network costs,particularly in the fixed networks that,today,deliver the vast majority of internet traffic.Costs that are not traffic sensitive,including the costs of deployin

290、g ISPs fiber access networks,represent a much greater share of network costs.Our analysis shows that the impact of internet traffic on network costs is relatively small,and network costs(traffic-sensitive or not)grow much more slowly than traffic itself.Operators have several additional avenues that

291、 they can use to control network costs in the future,which are also discussed in this section.In Section 3.3,we explore the steps CAPs are taking to help mitigate traffic-sensitive costs,in close partnerships with ISPs.CAPs investments in transport and delivery infrastructure reduce the need for mos

292、t ISPs around the world to collect traffic internationally and have ensured that the demand for and cost of transit remains manageable for ISPs(as well as CAPs themselves).Intelligent caching is further mitigating the cost impact of increasing demand for content,by enabling ISPs to serve content clo

293、se to their end users,in parts of the network that are less traffic sensitive.3.1 Demand for connectivity is intrinsically linked to demand for online services,with strong synergies recognized by CAPs and ISPs through marketing partnershipsEnd users typically purchase broadband services to access co

294、ntent and applications available on the internet.As demand for online services evolves,so does demand for broadband services.Demand for improved quality of online services,as well as new applications,is also accompanied by increased demand for faster broadband services.HighlightsDemand for online se

295、rvices provides clear opportunities for ISPs to sell top-end connectivity solutions to high data users.A significant amount of the demand for broadband services is driven by end users who decide to access online services and content from CAPs,as well as enterprises that use cloud services provided b

296、y CAPs to support their requirements.Delivery of internet traffic is primarily driven by the choices of end users,to consume specific types of content from specific providers at an optimal quality of experience and for a suitable price.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS

297、 OF BROADBAND ISPs31Figure 3.1 below illustrates how demand for online services,in particular video streaming and gaming,is correlated with higher current average broadband speeds,as well as interest in higher future speeds for subsequent broadband package purchases.This provides clear opportunities

298、 for ISPs to sell top-end connectivity solutions to those high data users,at prices that reflect the cost of delivering high volumes of traffic,with a high quality of experience,to users with a higher willingness to pay.It is worth noting that the demand that users have for top-end connectivity solu

299、tions is impacted by the marketing that ISPs engage in.77 Current average broadband speed(Mbit/s)Percentage interested in higherdownload speeds for next package00%10%20%30%40%50100150200US-with videoUS-with gamingUS-without gamingUS-without videoEurope-with videoEurope-with gamingEurope-without gami

300、ngEurope-without videoDVAP-with videoDVAP-with gamingDVAP-without gamingDVAP-without videoFIGURE 3.1:CORRELATION BETWEEN USE OF APPLICATIONS AND HIGH DEMAND FOR CURRENT AND FUTURE BROADBAND SPEEDS,IN THE US,EUROPE,AND DEVELOPED ASIAPACIFIC(DVAP)SOURCE:ANALYSYS MASON RESEARCH CONSUMER SURVEY,2021Prov

301、iding higher speeds and higher volumes of traffic requires investment.In a competitive market,serving differentiated needs and monetizing higher willingness to pay is also the way to optimize consumer benefits and profits,through effective segmentation.According to the Analysys Mason Research Consum

302、er Survey,broadband customers across the world,when asked about factors for choosing broadband providers,would often cite price as the most important.However,the survey also found that the most important factor affecting actual intention to churn from a provider is dissatisfaction with speeds,partic

303、ularly in North America and Europe.78 In other words,although internet users may choose a provider based on price,they choose to stay with that provider because of quality.As shown in the Sandvine Global Internet Phenomena Report published in January 2022,over half of all traffic demanded by end use

304、rs globally in the first half of 2021 was for video streaming content.The top-five application categories of video streaming,social,web,gaming,and messaging accounted for 87%of traffic combined.79 The largest global CAPs generally tend to operate across several application categories,and a significa

305、nt amount of the demand for broadband services is driven by end users deciding to access online services and content from these companies.80 While large global CAPs see significant demand for their services from end users in many different parts of the world,many third parties also use services prov

306、ided by CAPs to support their cloud needs.Moreover,more domestic or regional CAPs are also 77 For an example of how ISP marketing affects consumer demand for top-end connectivity solutions,see https:/ 78 Analysys Mason Research(2021),Consumer Survey 2020:fixed broadband retention and satisfaction in

307、 Europe and the USA.Available at https:/ Sandvine(2022),The Global Internet Phenomena Report January 2022.Available at https:/ We note that large CAPs also tend to use CDNs,including both in-house CDNs as well as those provided by third parties such as Akamai,to deliver content and services demanded

308、 by end users.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs32likely to account for a significant share of end-user demand for content in particular countries or regions.81 The importance of high-quality online services and content to the level of demand for broad

309、band connections is also clear from the extensive co-marketing between the two.For example,Free in France ran a major campaign with Netflix around Season 4 of Stranger Things;82 in many developing markets,where mobile is the primary means of accessing the internet,83 mobile data packages are sometim

310、es tailored to bundle access to specific online services,including messaging and social media provided by the main CAPs.84,85 More generally,CAPs and ISPs have also collaborated on a wider variety of areas beyond co-marketing,including network transformation and productivity improvements,better cust

311、omer care,and new business opportunities.86 Some arguments made within the context of the network usage fee debate have framed the delivery of traffic as being driven by certain large CAPs,87 or that such CAPs account for a certain large percentage of traffic in a country.88 These arguments essentia

312、lly characterize CAPs as being responsible for traffic.While it is the case that a handful of large CAPs deliver a significant share of the traffic demanded by end users,it does not then follow that these companies are responsible for the traffic,or that they are not investing in network capacity.89

313、 It is ultimately the choices made by end users that result in traffic delivery.These choices have an impact on the justification for a network usage fee,as described below in Section 4.3.2 Traffic volumes drive a relatively small share of costs for ISPs,and technological advancements in network tec

314、hnology lead to continuous reductions in unit costsAs broadband speeds increase,end users can do more with their internet connection;when enough people in a country and globally have access to sufficiently fast connections,new,richer services develop.These services spur further demand for faster con

315、nectivity and lead to greater data traffic.As explained in Section 3.1,this traffic is primarily driven by the choices of end users.81 For example,ZDFmediathek and ARD Mediathek are popular in Germany;see https:/www.bundesnetzagentur.de/EN/Areas/Telecommunications/Companies/Digitisation/Peering/down

316、load.pdf?_blob=publicationFile&v=182 Free(accessed July 2022).https:/www.free.fr/jeu-concours/stranger-things-4/83 Typically using mobile data,as fixed broadband networks tend to be less mature in developing markets.84 For example,MTN,a mobile operator in Africa,offers social bundles;See https:/www.

317、mtn.ng/personal/data/goodybag-social/and https:/www.mtn.co.za/Pages/MTN-Social-Bundles.aspx/85 It should be noted that certain jurisdictions(such as,recently,the European Union)do not allow such practices.See https:/www.ibanet.org/article/DAAB099C-A736-4ED7-BB4D-4719A1593A5F86 Analysys Mason(2017),O

318、perators digital transformation:unlocking EUR15 billion through partnerships with CAPs.Available at https:/ European Telecommunications Network Operators Association(2022),Europes Internet ecosystem:A 72bn boost to GDP and 840k new jobs are within reach if gaps in network costs are tackled.Available

319、 at https:/etno.eu/news/all-news/735:eu-internet-ecosystem.html88 Forbes(2022),The Growing Global Movement For Fair Cost Recovery On Broadband Networks.Available at https:/ The relationship between content and carriage has been established since the start of the twenty-first century,when arguments w

320、ere made suggesting that it was the broadband providers that were free-riding.HighlightsGrowth in traffic has not been accompanied by corresponding increases in network costs,as significant portions of ISPs networks are not sensitive to traffic.Traffic-sensitive core and backhaul costs tend to only

321、account for a small share of costs:we estimate that traffic-sensitive costs in the core and backhaul of fixed networks typically account for 2030%of network costs,and 1015%of revenue.The trend of network costs remaining relatively stable while traffic volumes grow,is expected to continue in future,p

322、articularly as fixed networks move toward fiber-based architectures,and as mobile technologies evolve to enable operators to add network capacity more efficiently.Investments made by CAPs in facilitating peering at interconnection points or deploying caches within ISP networks are also helping ISPs

323、to manage costs.THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs332000400050000300000500060002019USD billionExabytes per annum201820202021Network opex+total capex(USD billion)Total traffic(Exabytes)All of these things have a cost:networks must

324、be built,upgraded,and maintained;to offer greater speed and reliability,ISPs are deploying fiber optics deeper in networks,increasingly all the way to end users homes and offices;to carry more traffic,ISPs must invest in new,higher-bandwidth links and equipment.The value chain for these investments

325、is increasingly complex,but broadly speaking there are service providers(fixed ISPs,mobile operators)that run active network equipment that move internet bits and voice calls,as well as infrastructure providers,which tend to build and operate passive infrastructure including mobile masts and fiber-o

326、ptic cables and which serve ISPs,CAPs,and large enterprise users.3.2.1 Growth in network-related costs has remained relatively low and stable,despite significant growth in traffic levelsSince 2018,global traffic delivered over fixed and mobile access networks has increased significantly;over this sa

327、me period,network-related annual spend by telecom operators has remained relatively stable.Figure 3.2 below illustrates how network-related telecom operator costs,approximated as the sum of network operating expenditure(network opex90)and total capex,has increased only slightly between 2018 and 2021

328、,while traffic grew significantly over the same period.FIGURE 3.2:GROWTH IN TRAFFIC DELIVERED OVER FIXED AND MOBILE ACCESS NETWORKS,AND EVOLUTION OF NETWORK-RELATED TELECOM OPERATOR COSTS FROM 2018 TO 2021 SOURCE:ANALYSYS MASON,202290 Operating expenditure refers to expenses that companies incur to

329、support day-to-day operations.91 There are large economies of scale in routing equipment(e.g.the cost of a 100G connection could be only 23 times as much as a 10G connection).This means that the unit cost of traffic in a network handling more demand per link can be significantly lower than unit cost

330、s in a network that handles less demand per link.92 This can be seen as an example of Moores Law.See WIK-Consult(2014),The economic impact of internet traffic growth on network operators.Available at https:/www.wik.org/uploads/media/Google_Two-Sided_Mkts.pdf A key factor behind network costs remaini

331、ng relatively stable while traffic increases,is that equipment costs tend to fall over time while the capacity of network equipment also continues to grow and,as a result,the unit cost of traffic declines over time.For example,high-capacity routers91 and dense wavelength-division multiplexing(DWDM)e

332、quipment have become significantly more advanced,meaning that as networks are upgraded with new equipment,they are able to handle traffic volumes more efficiently.92 THE IMPACT OF TECH COMPANIES NETWORK INVESTMENT ON THE ECONOMICS OF BROADBAND ISPs34Another important reason why network costs remain

333、relatively stable as traffic grows is that significant portions of ISP networks are not sensitive to traffic to begin with.Broadband ISP networks are usually divided into the core and backhaul segments,as well as the access segment.Examples of modern ISP network architectures,for converged,fixed-only,and mobile-only networks,are illustrated in Figure 3.3 below.ConvergednetworkFixed-onlynetworkMobi