U.S.G. Comment on Brazil Consultation on Digital Platforms

Objectives:

The objective is to address the eventual market failure of network funding, with the aim of preserving connectivity infrastructure.

Preliminary Alternatives:

A- Maintenance of current structure (status quo)

B- Flexibility in the business model of telecommunications operators, with the aim of having greater freedom and, consequently, greater bargaining power.

C- Remuneration for network usage by all digital platforms.

D- Remuneration for network usage by a limited group of digital platforms.

E- Obligation on all digital platforms to contribute to a "connectivity fund."

F- Obligation on a limited group of digital platforms to contribute to a "connectivity fund."

G- Changes to dispute resolution processes between different aspects of the value chain.    

Problem Context:

The profits and costs of the telecommunications sector show diverging trends, such as a decline in revenues and rise in expenses. The deficit in question will likely worsen with the introduction of new technologies, as much in the network as in applications, creating an even-larger pressure on the infrastructure. From the perspectives of telecommunications operators, digital platforms are directly responsible for these challenges. Such stakeholders denounce a decline in their own products to the benefit of OTTs, noting that their services are supported by the connectivity layer and wouldn't be possible without their offerings.  This worsening structural imbalance could put at risk the sustainability of the telecommunications business and, as a consequence, the entire digital ecosystem.

Box 27: Review of subtopic, problem hypothesis, objectives, and proposed alternatives

Are the problem hypotheses, objectives, and alternatives correctly defined for the subtopic above? If so, does the data and evidence confirm your view? If not, does the data and evidence indicate that they must be revised or deleted? Justify your response with data and quantitative analysis.

U.S. Government Response:

**Submitted by the National Telecommunications & Information Administration on behalf of the United States**

The United States recommends modifying the Problem Hypothesis, Objective, and Problem Context of Subtopic 5.1 to better reflect the rapidly changing telecommunications market in Brazil—particularly consumer growth and investment. The U.S. also urges caution should Brazil consider several of Subtopic 5.1’s Preliminary Alternatives, including Options C-F.

According to the International Telecommunication Union the number of Brazilian consumers with an active mobile broadband subscription has increased from 184 million in 2019 to 200 million in 2022. Individuals using the Internet in Brazil has also grown from 73.9% in 2019 to 80.5% in 2022, a trend that can benefit network operators.^[i]  Digital platforms, in turn, help stimulate further demand for operator offerings. Thus, increased demand for these services gives telecommunications providers opportunities to expand their customer base and increase revenues to support increased telecommunications infrastructure investment.

Digital platforms depend on a diverse global infrastructure extending well beyond end-user access networks. They also incur obligations for capital-intensive ICT infrastructure such as undersea fiber optic cable systems, data centers, Internet exchange points, and caching locations. ^[ii] These investments reduce international transport costs for network operators, support network efficiency, and improve the user experience for Brazilian consumers. ^{[iii] [iv]} We encourage revising the Problem Hypothesis, Objective, and Problem Context of Subtopic 5.1 to account more fully for the context of consumer growth and investment in Brazil—as well as how such investment and technological advancement can defray operational costs for network operators.

Options C & D propose “direct payment” fees to network operators from digital platforms. Mandating such fees could—absent assurances on spending—reinforce the dominant market position of the largest operators. They could also give operators a new bottleneck over customers, raise costs for end users, and alter incentives for content and application providers to make efficient decisions regarding network investment and interconnection. It is also difficult to see how such a system could be enforced without undermining the principle of net neutrality in the Brazil Civil Framework for the Internet.

Similar concerns have been raised with governments that have implemented (or have considered implementing) this approach, like the Republic of Korea (ROK) and the European Commission. According to 2022 and 2023 research from the Internet Society, “direct payment” network fees in the ROK have contributed to reduced investments and greater costs for users.^[v] The Body of European Regulators for Electronic Communications (BEREC) has raised similar concerns, saying that “direct payment” fees would: “provide ISPs the ability to exploit the termination monopoly and it is conceivable that such a significant change could be of significant harm to the Internet ecosystem.”^[vi] A similar proposal in Brazil risks having a similar effect, contrary to the shared vision of an open and interoperable Internet recently articulated, for example, in the NETmundial+10 Multistakeholder Statement that Brazil spearheaded.

Options E & F would oblige digital platforms to contribute to a “connectivity fund.”  Levying payments on certain digital platforms could create discriminatory commercial conditions and potentially reduce competition between similar services offered by telecom companies or non-obligated digital platforms, detracting from network neutrality principles in the Brazil Civil Framework for the Internet.     In box 28, the United States shares experience from operating a Universal Service Fund, which is funded by telecommunications service user fees, to advance similar goals. We also share our experience making infrastructure investments through general appropriations. 

Subtopic 5.2:

Impacts of the expansion of telecommunications infrastructure

Problem Hypothesis:

Distortion of incentives in the trade-off between the resources to invest in capacity or network expansion, leading to socially unsatisfactory results.

Objectives:

The objective is to orient investment in connectivity infrastructure, with the aim of bridging the digital divide.

Preliminary Alternatives:

A- Maintenance of current structure (status quo)

B- Flexibility in the business model of telecommunications operators, with the aim of having greater freedom and, consequently, greater bargaining power.

C- Remuneration for network usage by all digital platforms.

D- Remuneration for network usage by a limited group of digital platforms.

E- Obligation on all digital platforms to contribute to a "connectivity fund."

F- Obligation on a limited group of digital platforms to contribute to a "connectivity fund."

G- Changes to dispute resolution processes between different aspects of the value chain.    

Problem Context:

Digital platforms drive data demand and, consequently, can affect investments on the network. In the face of an imbalance in bargaining power between telecommunications service providers, and large digital conglomerates, in favor of the latter, the autonomy of holders of infrastructure is harmed.

In order to provide flow to increasingly data-intensive applications, connectivity service providers end up having to prioritize increasing capacity, typically in urban centers, instead of expansion of coverage to unserved or precarious areas, given capacity limits in the financial status of each provider.

There would thus be a shared perception among network operators, regardless of size, as the existence of gaps in coverage, especially in rural and more remote areas, despite regulatory incentives by Anatel and public policies for the outlay of access/connectivity (such as public notice commitments, TAC, establishment of ODF in sanctioning processes, application of FUST resources, among others).

Box 28: Review of subtopic, problem hypothesis, objectives, and proposed alternatives

Are the problem hypotheses, objectives, and alternatives correctly defined for the subtopic above? If so, does the data and evidence confirm your view? If not, does the data and evidence indicate that they must be revised or deleted? Justify your response with data and quantitative analysis.

U.S. Government Response:

**Submitted by the National Telecommunications & Information Administration on behalf of the United States**

The United States shares the priority of spurring further development of digital infrastructure—the Objective of Subtopic 5.2. In addition, the U.S. agrees with aspects of the Problem Hypothesis and Problem Context of Subtopic 5.2. The U.S. urges caution should Brazil consider several of Subtopic 5.2’s Preliminary Alternatives, including Options C-F.

The United States’ approach to financing improvements to broadband infrastructure involves private investments, a national Universal Service Fund, and public funding made from general appropriations. Publicly accountable funding mechanisms can better ensure that resources are devoted to key policy objectives, such as improving access and strengthening network security. At the same time, it is important to avoid discriminatory measures that distort competition.

The U.S. Universal Service Fund programs play a key role in incentivizing investment and network deployments to make access to communications systems more available and affordable, including to remote and underserved communities. Interstate telecommunications services providers and certain other telecommunications providers, such as interconnected VoIP providers, contribute a percentage of their end-user revenues for these services into a fund to support network deployment and supplement approved services and equipment deployment and maintenance. U.S. policy allows the providers to recover USF contributions directly from consumers; such recovery fees cannot exceed their contribution to the USF. In this context, we note that the Government of Brazil reformed its Universal Service Fund in 2020 and that ANATEL has issued implementing regulations.^[vii] With this in mind, it is not clear how the “connectivity fund” envisioned in Option E and F would affect USF obligations in Brazil.

In 2021 the United States invested over $90 billion in broadband through the Infrastructure Investment and Jobs Act and American Rescue Plan. The largest of these initiatives aims to close the digital divide by subsidizing the deployment of long-lasting high-speed broadband infrastructure. Service providers participating in the initiative are required to provide low-cost options to eligible subscribers. This initiative between the U.S. government, our state and territorial governments, and service providers will help bring broadband to the unserved and underserved. After this one-time investment, separate Universal Service Fund programs and smaller infrastructure programs funded through annual appropriations will maintain connectivity over time. This investment came from general appropriations, rather than a “connectivity fund” levied on a small group of stakeholders as proposed in Options E & F. To learn more about this work, we invite you to access the National Telecommunications & Information Administration’s recently-released “2023 Annual Report.”^[viii]

[i] ITU DataHub. https://datahub.itu.int/

[ii] In Brazil, for example, online platforms/OTTs operate 12+ data centers—and many operate three or more in the country. https://www.cloudinfrastructuremap.com/

[iii] In Brazil, for example, digital platforms have financed and built the “Firmina” (2024) and “Malbec” (2021) submarine cables. https://www.submarinecablemap.com/submarine-cable/firmina

[iv] Some experts’ research seems to confirm the existence, and benefits, of such a “symbiotic relationship.” Prado, Tiago S., Value-Added Services and the Future of Telecommunications: Empirical Evidence to Inform the Network Fees Debate in Brazil (July 20, 2023). Available at SSRN: https://ssrn.com/abstract=4517581 or http://dx.doi.org/10.2139/ssrn.4517581

[v] Internet Society. “Internet Impact Brief: South Korea’s Interconnection Rules: 2022.” https://www.internetsociety.org/resources/doc/2022/internet-impact-brief-south-koreas-interconnection-rules/

[vi] BEREC preliminary assessment of the underlying assumptions of payments from large CAPs to ISPs, October 2022. https://www.berec.europa.eu/en/document-categories/berec/opinions/berec-preliminary-assessment-of-the-underlying-assumptions-of-payments-from-large-caps-to-isps

[vii] BNAmericas. “¿Por fin se destraban los recursos del fondo brasileño de telecomunicaciones?” 2022. https://www.bnamericas.com/es/entrevistas/por-fin-se-destraban-los-recursos-del-fondo-brasileno-de-telecomunicaciones

[viii] National Telecommunications & Information Administration (NTIA). “Office of Internet Connectivity and Growth 2023 Annual Report.” 2024. https://www.ntia.gov/report/2024/office-internet-connectivity-and-growth-2023-annual-report