In the UK, the Labour Party plans to nationalise part of the telecommunications network if it wins this year’s election.
To cover costs, a Labour government will tax multinational tech giants including Google and Facebook.
Let’s put aside the idea of nationalisation1. Instead, let us focus on the idea of making tech giants contribute towards the cost of telecommunications networks.
The idea isn’t ridiculous. Google and Facebook made their fortunes on the back of telecom networks. In effect they had a free ride.
People who invested in building Spark, Vodafone, Chorus and the rest of New Zealand’s telecommunications networks have, up to a point, subsidised the tech giants.
A decade ago there was talk in telecom circles about recapturing some of the value taken by over-the-top companies.
That battle was lost before it started.
It could be impractical and difficult for a small nation like New Zealand to force tech giants to pay all the costs of our telecommunication network.
That would remove price signals. These are important. They help the industry squeeze value from the assets. They tell planners where to invest.
Jangling the gold
There is one area where we can hold Facebook, Google and maybe other tech giants upside down and jangle the coins out of their pockets.
We could get them to contribute to our Telecommunications Development Levy.
This is the money collected by the government to help subsidise rural telecommunications. It also pays for things like the services that help blind and deaf people use phones.
At the moment the TDL is $50 million a year. It’s called a levy, but it’s really a tax on telecommunications companies. They each pay a share roughly based on how much they earn from sales.
As things stand today, Spark, Vodafone and Chorus pay the lion’s share.
How it might work
Suppose, for one minute, we decide to treat income the digital giants earn from New Zealand on the same basis as local telco revenue.
We’ll forget the smaller firms for now and focus on only two tech giants: Google and Facebook.
It’s hard to know exactly how much these companies make in New Zealand. The Commerce Commission would be have a job extracting this data, but it is doable.
This NZ Herald story estimates Google made around $600 million here in 2017. The number for Facebook is hard to estimate. For the sake of argument, let’s say it is much the same.
The total qualified revenue for New Zealand’s telcos is $4.1 billion. If we add in the tech giant revenue that gives us $5.3 billion.
In round numbers that puts Google and Facebook’s share at 20 percent of the total.
This means we could reasonably ask the two giants to stump up $10 million towards the TDL.
If we add in the other large companies who earn revenue on the back of New Zealand having a decent digital network that could take the total contribution from over the top money earners up to around a third of the TDL total.
It would be hard for anyone to argue such an approach is unfair. The amounts are, in comparison, tiny. A $10 million charge on $1.2 billion is less than one-tenth of one percent. It wouldn’t even feature as a budget line item.
Tech giants make huge margins on their revenues. The charge need not have any effect on prices.
In comparison the profit margins for New Zealand’s telecommunications companies are slender. Putting $15 million or so2 back into their hands wouldn’t make a huge difference. It would ease their burden.
So there you have it. The company’s that benefit most from investment in telecommunications can return a tiny trickle from their rivers of gold so that more New Zealanders can access their products and services. Is that so unreasonable?