Consumer apps can generate a lot of traffic and revenue, but some carriers have complained that they’re not getting a fair cut of the pie for carrying all that traffic across their network infrastructure. But if you were looking for a test case that demonstrated how the two sides might be able to work together, don’t look to Germany. On Wednesday, Meta and Deutsche Telekom published respective blog posts officially and publicly announcing an end to their direct peering relationship with Deutsche Telekom.
“Following months of discussion, we are surprised and disappointed by the breakdown in negotiations with Deutsche Telekom,” Meta wrote in its post. “We have settlement-free peering agreements in Germany and around the world with telecom providers that allow their users high quality and fast access to our apps.”
“Meta is now playing a gross foul,” DT said in a post published about two hours later. “Meta is once again abusing its overwhelming bargaining power to discredit legitimate concerns of the European telecommunications industry and consumers in order to avoid fair payment.” It also said it would “continue to charge Meta for its data transport service as an advance service for its online business model.”
Meta says it is now working with a third-party transit provider to ensure its service would not be “disrupted.”
The two public pronouncements caps off years of fighting between the two companies. It’s been one of the more public examples of the ongoing disputes that continue to be waged between carriers and internet content makers.
Specifically, the debate has been whether carriers are justified in asking to be paid to carry their heavy traffic, or whether content platforms are justified in claiming that their existence is a win-win for both (since fast experiences of bandwidth-heavy services is a strong selling point for customers), an idea that also underpins the much-debated concept of net neutrality. Carriers that have felt most hard done-by over heavy data traffic have gone so far as to intentionally reduce service levels.
The story in a nutshell (with a hat tip to telecoms consultant John Strand of Strandconsult for a summary in one of his past newsletters):
- Back in 2010, DT and Meta (then Facebook) inked a deal whereby DT would dedicate 24 private interconnection points with 50 ports and 5,000 gigabits/s data rates at 7 locations “for the exclusive use of the Meta services,” which include Facebook, Instagram, and WhatsApp. Meta paid a bandwidth-dependent fee of around €5.8 million per year for this.
- After 10 years, Meta requested that DT reduce the price by 40%. DT said no and instead offered a discount of 16%.
- Before they could agree on a deal, the pandemic hit. Meta terminated its agreement at the end of that year and by March 2021, DT was offering Meta the option of continuing to use the ports “for the benefit of consumers” until they inked a formal new agreement, apparently confident that they would and that Meta end up paying something. It continued to bill Meta.
- But it sounds like Meta thought otherwise. Citing the concept of “settlement-free peering,” it didn’t pay anything. (In the blog post today, Meta refers to this too as a basic part of direct peering arrangements like the one it had with DT.) “We, and many other internet companies, have reciprocal no cost (settlement-free) relationships with thousands of other telecom providers around the world. These relationships are the accepted global standard and operate settlement-free to either side because they benefit everyone.”
- Well, “everyone” does not include DT, it seems. The carrier sued the Germany subsidiary of Meta in December 2022.
- Meta lost eventually, and the court ordered Meta to pay €20 million in fees. As Strand explains, its reasoning was based on the fact that Meta’s use of the peering ports “is predicated on mutual agreement and exchange of relatively equal of traffic. Upon cancelling the contract, Meta effectively demanded premium treatment of its data for free; whereas consumers only purchase best efforts access to the public internet.” DT does allow for settlement-free peering on a contractual basis, but only using predefined criteria, which was not the case here.
- Meta’s attempt to contest this has not progressed. Hence the final break-up between the companies.
Whether you fall on the side of Meta or DT on this might depend on which side is actually making more or less revenue and profit out of this deal, and also the bigger principles of whether freedom of access is the same as freedom to use as much bandwidth as needed for a service.
Strand points out that Meta’s average revenue per user has gone up tenfold in the ten years between inking its original deal in 2010 and terminating a decade later. According to its last quarterly earnings, Meta said average revenue per person for its wider family of apps was $11.89. DT’s mobile ARPU has fallen to $10 per month. That is before considering the investment in network upgrades that DT has made moving to 5G, Strand adds, which may go some way to explaining DT’s rationale for wanting something out of Meta.
Yet there are two sides to every story. The Center for Internet and Society at Stanford Law School describes DT as a “bully” and the whole process as it is playing out currently as a “shakedown” of Meta. “We are about to see whether the largest and most powerful telecom in Europe, Deutsche Telekom (DT), can force websites and apps to pay so-called ‘network fees’ when they deliver the movies, sites, and data DT customers request,” writes Stanford professor Barbara van Schewick.
The big question will be what happens with Meta’s services in the country now, and whether regulators will get involved. Given that this issue is playing out across multiple countries and involving multiple companies, the implications worth watching.
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