Fact Check on Analysys Mason’s Claims on Big Tech Investments and Arguments Against Broadband Cost Recovery

Analysys Mason is a respected international consultancy whose reports inform the policymaking process. It has produced a series of reports commissioned by US tech companies like Google, Facebook, Netflix, Amazon, Microsoft, and their trade associations (collectively Big Tech). These reports are worthy of review not just for their seemingly factual claims but for the policy arguments for and against regulation of Big Tech.

In the spirit of free expression, Strand Consult supports the publication of such reports as well as their critical examination. With its new free report “Fact Check on Analysys Mason’s Claims on Big Tech Investments and Arguments Against Broadband Cost Recovery,” Strand Consult reviews the claims by Analysys Mason in its 2022 report “The impact of tech companies’ network investment on the economics of broadband ISPs” by David Abecassis, Michael Kende, Shahan Osman, Ryan Spence and Natalie Choi. Strand Consult attempts to find separate, independent sources which verify Analysys Mason’s claims and poses critical questions to its arguments.

Importantly, Analysys Mason’s numbers are “estimates”, which it attempts to compare against audited, publicly available numbers of broadband providers. Strand Consult’s describes these and other caveats. Here are the results of Strand Consult’s fact check whichs find that many of Analysys Mason’s claims can’t be verified.

  1. Analysys Mason’s report on tech companies’ infrastructure investment is not conclusive or convincing. While Analysys Mason’s claims about the level of internet infrastructure investment by edge providers appears credible and consistent with the size and scale of the major internet giants (called “edge providers” in US parlance), these numbers come from Analysys Mason’s own calculations. Analysys Mason created the category of “infrastructure investment” to produce this report. There is no such line item in the financial statements of edge providers. Comparing Analysys Mason “estimates” of edge providers’ investment versus audited, publicly available numbers from broadband providers entails methodological problems. Moreover the type, purpose, level, regulatory treatment, and location of the infrastructure investments in the comparisons do not cohere. Moreover, these investments largely reflect the requirements and profit-driven decisions of edge providers’ for own businesses and “direct investment in their own infrastructure” (p. 21). By contrast, broadband providers as a class invest far more in “internet infrastructure” to connect end users to the internet than both in nominal amounts and as a percentage of their revenue, compared to Analysys Mason’s figures of edge providers. Publicly available reports and financial statements document that US broadband providers alone invest more in “internet infrastructure” annually (capital expenditure in networks) within the USA, now exceeding $86 billion annually. This amounts to as much as one-quarter of the annual revenue or more for US broadband providers. Whereas the figures for edge providers presented by Analysys Mason are de minimis:  Internet giants’ “internet infrastructure” investments amount to 1% of their revenue. The 2019 report “The State of Broadband: Broadband as a Foundation for Sustainable Development,” by the International Telecommunications Union reported that capital expenditure by telecommunications providers in 2016 already topped $354 billion annually.  That number has likely grown as the US experienced a 20 year high in investment in 2021. Analysys Mason reports an annual average for edge providers of $75 billion for 2014-2017, and $120 billion for 2018-2021.
  1. Analysys Mason’s claim of broadband providers’ cost savings is invented and unverifiable. Analysys Mason claims that edge providers expenditures deliver $5-6.4 billion in cost savings for broadband providers. This claim cannot be verified by the data provided or from separate, independent reports. It is possible to imagine that a large broadband provider(s) could realize cost saving or efficiency enhancement from technology partnerships or other arrangements with edge providers. But that is not the case presented. Analysys Mason claims many broadband providers save money because of Big Tech’s investments. Strand Consult shows how Analysys Mason’s model, based upon an average country with an operator with 4.5 million subscribers and 30% market share could be true for just 1 country in Europe, if not the world: Romania. Hence Analysys Mason’s calculations based on a mishmash of figures to form a global conclusion is neither factual nor credible. In any event, the ostensible purpose of edge providers’ infrastructure investment is to manage, if not increase, the content, service, and data to end users. This does not necessarily translate into a decrease in cost for broadband providers. Separately, Strand Consult’s research and survey of the 50 rural broadband providers in 24 US states did not observe such cost savings from edge providers’ investments. Rather, the rural broadband providers report the opposite: costs are increasing from increasing traffic from edge providers.
  1. Analysys Mason’s claims on regulatory holism and scrutiny of cost recovery reveals pseudo-facts, opinions presented as facts. Analysys Mason proffers that cost recovery will harm end users and investment, but cites no theory, academic references, or empirical evidence to prove this.  This section of Analysys Mason’s report mischaracterizes broadband cost recovery policy efforts globally. For example, Analysys Mason characterizes cost recovery as mandated network usage fees, yet no such regime exists. South Korea still relies on market-based negotiation for data transit between content providers and broadband providers. Strand Consult provides official links to the policies and proceedings around the world so that readers can judge for themselves. Indeed the policymaking underway in South Korea, a synthesis of 7 bills from different political parties, attempts to strengthen the market-based negotiation between edge providers and broadband providers with proposals for good faith, duty to deal, transparency, and prohibitions against refusal to supply. These conditions were necessitated because edge providers have either threatened to withhold or degrade content if free access was not provided by broadband providers.
  1. Analysys Mason’s claims about cost recovery and South Korea fail the fact check. Analysys Mason’s claims about South Korea contradicts the reality of a nation consistently rated as a world’s broadband leader as measured by multiple sources. In the last section of the paper, Analysys Mason asserts that cost recovery will harm investment and end users, with a particular attempt to impugn cost recovery efforts in South Korea. Strand Consult provides the facts on South Korea. Authoritative independent sources on South Korea shows that content and investment have increased, and broadband prices have fallen. South Korea reigns as the world’s leading broadband nation, enjoys the world’s highest adoption of next generation networks, and ranks 7th globally for its creative industries. Moreover, Google and Netflix report record profits in South Korea even when they negotiate for network usage with broadband providers. 
  2. The purpose of Analysys Mason’s report is to argue for the policy status quo for Big Tech.

Analysys Mason itself states, “This report is intended to bring a clear and evidenced-based perspective to the global debate regarding whether network usage fees should be introduced.” (p. 4). However, the Analysys Mason report does not provide evidence on the subject of network usage fees. Rather it argues and demonstrates that tech companies are investing more in their own businesses, notably to make them more efficient to deliver more content and service. In this regard, the investments by tech companies for their own benefit is utterly rational and predictable. However, it does not follow that internet giants are now entitled to access broadband providers’ networks for free.

If edge providers believe they are so critical to the ecosystem and that they are leading investors in “internet infrastructure,” so much so that they want to be measured up against broadband providers in investment, then Analysys Mason’s report could be understood as a justification that edge providers be regulated like broadband providers.

Given documented shortfall of broadband network investment in certain areas, the social cost suffered with lack of broadband access, and the growing reliance of society and the economy on broadband networks, the financing of broadband networks has become an important policy issue. Many nations increasingly see that edge providers have a role and responsibility to participate in the financing of networks beyond the provision of their proprietary services. The emergence of Analysys Mason’s report is interesting in its content and timing to argue against the global efforts for broadband cost recovery. Big Tech, which has largely prospered under the broadband policy status quo, doesn’t want change. Big Tech benefits handsomely from others’ broadband investments and as people adopt the internet.

Strand Consult further fact check’s Analysys Mason assertion of the “interdependent, mutually beneficial” markets for data transport. Strand Consult’s microeconomic analysis of 50 rural US FTTH providers demonstrates that broadband providers have increasing costs from growing video streaming entertainment traffic. Not only can rural broadband providers not recover costs, they have no data exchange relationships with Big Tech giants anyway, and their attempts to negotiate fall on deaf ears. Few, if any, broadband providers have been able to raise prices meaningfully in the face of growing costs.

Even if policymakers believe that Big tech has no obligation to pay or negotiate for the use of broadband providers’ networks (as Netflix has argued in South Korea court), there is a still a valid case for internet giants to support universal service obligations and affordable connectivity programs which provide vouchers and broadband subsidies directly to end users. If Big Tech wants accolades as infrastructure providers, they should also shoulder the burdens. Get more knowledge today. Become smarter tomorrow. Order this free report.