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Internet giants, the big winners from the Covid-19 crisis

Internet giants, the big winners from the Covid-19 crisis

The coronavirus epidemic has affected revenues of all multinational companies, negatively or positively. During this pandemic, the internet giants (GAFAM) in particular have made themselves especially useful;  their products and services have become essential in our daily lives. As a result, their turnover grew positively and they were among the biggest winners in this time of crisis. They thus saw their market capitalization and their turnover improving during the Covid19 pandemic, as shown in the tables below.

Box N°1: Over the top (OTT) services are a headack for telecom operators.

“OTT” is the acronym for Over-The-Top. There are new actors who provides voice, data and other services that we use through networks of our telecom operators and which are provided by other players who have no agreement of any kind whatsoever with those operators and who nevertheless use their infrastructures. This is a new type of telecommunications player, which uses the Internet to provide services to subscribers. They are therefore new players, who don’t have any license and don’t pay any royalties or termination fees to traditional operators, although they use telecom operators’ networks.

Example: Amazon recorded a revenue increase of over 30% from year to year in the first six months of 2020. The Electronic industry has also benefited from the crisis. Indeed, electronic companies benefit from the acceleration of digital transformation, with the development of certain services such as cloud computing and with the increase in demand for data centers, computer networks and telecoms networks such as 5G and FTTH (fiber to home). The turnover of the electronic sector increased by 6% during the first six months of the Covid-19 crisis.

Revenues growth of OTT players compared to the one of telecom operators  

Box N°2: Internet giants engage heavily in submarine cables

In recent years, telecom operators are no longer the only ones to invest in submarine cables. The internet giants dream of controlling this invisible connectivity, made up of submarine cables. Orders of the Internet giants currently represent 40% of total orders for these cables, against barely 10% in 2013. Google has already invested in Faster, a 12,000 km cable that connects the west coast of the United States to Japan. Among risks raised by the control of the internet giants over these global arteries, is to observ them tracing the routing of intercontinental communications depending on the location of their Datacenters. In 2018, the 6,600 km fiber optic submarine cable, called “Marea”, held by Microsoft and Facebook came into service, connecting Virginia Beach in the United States to Bilbao in Spain, with a power of 160 terabits (10 to the power 12 bits per second). These internet giants are also making two submarine cables around Africa, namely the Africa2 submarine cable where Facebook is a major shareholder, and Google’s submarine cable. These two cables will be operational in 2022. Therefore, we understand better the concerns of operators which would be probably amplified by the arrival of Google, Facebook, and even Microsoft, in the underwater cabling activities.

Technological development and connectivity are the two main factors which enabled the emergence of internet giants such as GAFA. As for OTTs, consumers all over the world cannot do without their services today. But the emergence of these giants has had significant impacts on the economies of countries and on telecom operators in particular. The international organizations concerned, as well as telecoms regulators, at the global level, are worried by this progress and are called upon to establish new rules, in order to better protect the interests of all the actors operating in the telecoms’ value chain. Thus, while faced with the expansion of GAFA digital platforms, the European Union is discussing two digital policies to regulate platforms like Google, Amazon, Facebook and Apple namely The Digital Services Act (DSA) and The Digital Market Act (DMA).

These two policies aim to impose obligations, particularly economic ones, on the giants of the net. The Digital Services Act (DSA) aims to provide accountability for the largest platforms, which must have the means to regulate content and cooperate with the authorities concerned. As for the regulation on digital markets (“Digital Markets Act” or DMA), it imposes specific constraints on GAFAM, which appear to distort free competition. Through these two acts, Google is probably the most concerned because it captures alone more than 90% of Internet searches. Furthermore, its Android operating system equips more than 75% of smartphones in the world. Moreover, in addition to Facebook, leader in social networks, Brussels is also targeting Apple for its iOS system, a must-have store for applications on smartphones. The DMA foresees the possibility for the European Commission to review a case concerning GAFA before one or many of those companies lodge a complaint. Of course, the GAFA are opposed to these new regulations which they believe could restrict the innovation and allow Chinese platforms to take over! According to the newspaper Le Monde on December 8th, and in the name of competition, the Commission intends to counteract the dominant position acquired by the digital giants in their sector. The GAFA are preparing to oppose these regulations by emphasizing on their contribution to technological innovation and their strategic weight in the face of Chinese expansionism.

                                              By Alan Smith, Telecom and ITC consultant

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