Europe at the Crossroads: Telcos, Interconnection, and Innovation

Lately, Brussels has been murmuring about intervening in the interconnection market with DG CNECT signalling interest in enhancing cooperation in the interconnection market, with a particular focus on traffic optimisation. The Commission’steams are raising the possibility that disputes over interconnection (especially involving CAP networks / CDNs) might need regulatory oversight—even if, technically, national regulators (NRAs) claim limited formal power, since CAP networks are “not public” in regulatory definitions. At the same time, there’s increasing talk of BEREC being a “neutral body” to help arbitrate such disputes. European policymakers in Brussels repeatedly stress three values: the need for regulation, network resilience, and recognising connectivity’s role in competitiveness and the Single Market.
On the surface, these are unassailable ideas. Who could oppose regulation of markets that are critical for digital life? Who could reject resilience, competitiveness, network performance? But the devil is in the details, and in the incentives. What is being discussed now isn’t just oversight of “bad actors” or fixing genuine bottlenecks. Instead, the tilt seems toward reshaping how interconnection, traffic flows, CAP/CDNs, and ultimately who pays whom, will work in Europe. And that tilt carries real risks: regulatory capture by big telcos, higher costs, innovation chill, degraded user experience.

Evidence on What’s Already True: IP-Interconnection Market Functioning

Before getting into the risks, it’s important to note that multiple recent reports find the interconnection market in Europe is already largely working well. Some key findings:

• BEREC’s “IP interconnection ecosystem” work (BoR (24) 93) shows that a large share of interconnection involves on-net CDNs, peering, transit, and that prices for transit / CDN services are declining. 
• The “BEREC work related to the IP-IC ecosystem” summary notes that interconnection is “largely driven by competition,” traffic is growing, and that the internet has shown capacity to self-adapt (through technological progress, peering, CDNs etc.) to increasing demand.  

In short: much of what regulators are worrying about is already addressed—or at least is not yet clearly shown to be a market failure requiring sweeping regulation.

Why Intervention in Traffic Optimisation and Interconnection is a Bad Idea

Given the above, here’s what policymakers should beware of: intervention in interconnection (especially traffic optimisation mandates, forced compensation from CDNs, or regulated peering) doesn’t fix problems so much as shift power. It hands incumbents – the big telcos – precisely the tools they need to erect barriers, extract rents, and slow down edge innovation. Some of the specific risks:

• Regulatory Capture & Incumbent Advantage: The telecom incumbents already control much of the physical infrastructure. If the rules for interconnection are written, interpreted, or enforced via regulation, those with more resources (legal, technical, political) will dominate the debate. They will shape what “fair interconnection” (or fair traffic optimisation) means, likely in ways that preserve their advantage, especially in last-mile access and backbone infrastructure. Startups, smaller ISPs, smaller edge players will be at a disadvantage—they will have less bargaining power, less ability to litigate, less ability to absorb compliance costs.
  
• The Path Toward “Sending-Party Pays” / Termination-Fee Models: Some proposals discussed in stakeholder contributions already flirt with requiring CAPs or CDNs to pay more to ISPs / telcos to carry their traffic (or to connect more closely). These resemble “sending party pays” or “termination fees” models. Historically, these models have been resisted because they risk either double-charging, or distorting traffic flows. If regulated, such cost burdens will preferably be borne by those with less negotiation leverage—i.e. CAPs, CDNs, smaller providers. Big CAPs might still negotiate, but all of this reduces the flexibility that has helped the Internet evolve.
  
• Innovation Choke Points: CDNs are not “just content” delivery: they are enablers of low latency, quality of service, edge computing, streaming, gaming, even new applications like VR/AR, IOT, etc. Weakening or over-regulating their interconnection and forcing onerous obligations on them will reduce incentives for innovation at the edge. It will also discourage investment in distributed infrastructure (edge nodes, caches, localized data centers) if the regulatory risks are high, or the cost structure too unpredictable.
  
• User Experience & Performance Might Suffer: When traffic optimisation is regulated or standardised, there is a danger that the optimisation isn’t optimal for all users. Once you remove flexibility, or introduce “one-size-fits-all” rules, or force all traffic to go through regulated paths or mandated peering points, latency may increase, redundancy may decrease, and robustness might be compromised. Also, some of the best innovations in content delivery come from competition and experimentation; regulation tends to favor stability and incumbents over experimentation.
  
• Europe’s Competitiveness Under Threat: If Europe imposes heavy regulation here while the U.S., Asia, or other regions allow more market flexibility, Europe could lose its advantage in the deployment of content infrastructure (CDNs, cloud, edge compute). Investors may see risk in being subject to unpredictable regulatory interventions, so they may prefer putting infrastructure in less regulated jurisdictions. Over time, Europe could become a market where connectivity is reliable but innovation lags—where the internet is “safe” but sterile.

Why Targeting CDNs / CAPs is Especially Myopic

Regulators seem to assume that CAP networks / CDNs are somehow outside the public interest or regulatory oversight, because they are “private,” “non-public networks,” or because regulators say NRAs don’t have authority over them. But treating them as external to regulation is misleading in two ways:

• First, CDNs are deeply intertwined with the performance and resilience of the public Internet. They reduce backbone load, improve recovery from outages, localize content so that users far from origin servers still get good performance. Penalising or regulating them heavily damages resilience.
• Second, targetting CAPs and CDNs presupposes that they cause the major costs or congestion. The evidence, especially in BEREC’s reports, is that the costs (or traffic volumes) are increasing, but the ecosystem has adapted: more on-net CDNs, more peering, declining transit prices, and declining cost per bit. The problem is not necessarily “too much traffic,” but rather mismatches in infrastructure investment, last-mile bottlenecks, etc.—issues where telcos already are the incumbents.

So regulation that tries to force CAPs/CDNs into telecom regulatory regimes misunderstands their role, overlooks their contribution, and invites counterproductive outcomes.

What the Data and Stakeholders Say

• According to BEREC’s 2024 report on the IP-interconnection ecosystem: the market remains competitive, on-net CDNs are a growing and significant element, transit / peering prices continue to decline even as traffic rises. 
• Stakeholders have repeatedly warned that mandatory dispute resolution over interconnection, or forced payments from CAPs to ISPs, would create incentives for large ISPs to assert “termination monopolies” (i.e. leverage their control over networks that serve end customers) to demand payments from CAPs / CDNs—effectively turning the Internet into something more like traditional telephony, rather than the flexible, peering-based, mutual model it has historically been. BEREC and other voices have called for high justification before any such regulatory leap is made.
• In a statement published in July 2025, 84 signatories have urged the EU Commission to make sure that theforthcoming Digital Networks Act fully protects net neutrality, ensuring that all internet traffic is treated equally, preventing internet service providers from blocking, throttling, or prioritizing content, and imposing strong enforcement mechanisms and transparency obligations to uphold these principles. 

Policy Warning: How Brussels Must NOT Proceed

Given these risks, here is a warning for Brussels: if regulation in this space is handled poorly—or even moderately clumsily—the outcome will be worse than the status quo. It will mean capture by telcos, poorer choices for citizens, higher costs for CAPs and content providers, slower innovation, less investment in new kinds of digital infrastructure.
Below are some red lines Brussels should avoid crossing:

• Don’t mandate financial contributions or fees from CAPs / CDNs to ISPs under vague “traffic optimisation” pretexts. If CAPs are forced to pay for traffic simply because their content is requested, that’s very close to turning the Internet into a “sender-pays” model, with all the distortions that entails.
• Don’t force standardised, regulator-imposed peering / interconnection rules such that all networks must interconnect on particular terms (latency, redundancy, capacity). Flexibility in negotiation is what allows efficient arrangements and innovation.
• Don’t over-regulate CDNs / CAP networks under telecom-style obligations. They are structurally different: their role is closer to content delivery, caching, optionally accelerating or localising traffic—not operating last-mile networks, handling numbering, emergency services, etc. Imposing telecom regulation could misalign incentives, reduce investment, and reduce performance.
• Dispute-resolution mechanisms should be narrow, evidence-based and only invoked where there is clearly demonstrated market failure, prolonged harm to end users, or anti-competitive behavior. They should not be default tools to enforce fairness in any interconnection disagreement.
• Protect net neutrality and open Internet principles. Traffic optimisation can sound benign, but it may be used as a Trojan horse for service or content differentiation, fast lanes, or to privilege certain CAPs or CDN providers. The Open Internet Regulation (Regulation 2015/2120) must continue to guard against circumvention.

Conclusion: Europe’s Internet Needs Flexibility, Not Micromanagement
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DG CNECT’s interest in traffic optimisation, interconnection cooperation, and possibly bolstering regulatory oversight may come from a sincere desire: to ensure networks are resilient, that all member-states enjoy fast, fair connectivity, and that the Single Market functions without digital fragmentation. These are laudable goals.
But policy happens in the details. Intervening in interconnection in the name of cooperation or optimisation—especially when CAP/CDN networks are targeted—is not a neutral act. It shifts bargaining power toward those who already control infrastructure; it increases the risk of regulatory capture; it makes innovation harder, riskier, and costlier. It threatens to turn Europe’s internet into a safer but staler environment, where incumbents benefit at the expense of agility and edge innovation.
If Brussels wishes to secure Europe’s competitive edge, it should focus on:

• Encouraging investment in last-mile infrastructure (fiber, 5G), removing barriers to deployment
• Clear rules ensuring net neutrality and freedom of content
• Transparent, minimal, evidence-based regulation only where there is a proven market failure
• Supporting CDNs, edge compute, cloud infrastructure so that content is delivered closer to end users

Otherwise, what is framed as “interconnection regulation” may become, in practice, a trojan horse: regulatory micromanagement that locks in telcos, raises costs, chills innovation—and hands Europe’s digital future over to those with the deepest pockets rather than those with the boldest ideas.