Net Neutrality: The current and proposed position in the EU – the second in a three part series

In an ‘always-on‘ age where demand for high-speed, high capacity internet continues to increase, governments and regulators around the world are faced with the challenge of how best to satisfy that demand whilst guaranteeing that access to the internet remains ‘open‘ to all users. A number of countries have already adopted specific net neutrality rules; others – including the EU as a whole – are poised to do so.

Come 30 April 2016, we will for the first time have a specific EU net neutrality framework. The framework will be embodied in a regulation (the Draft Regulation)(1) and so it will be immediately applicable in all Member States without the need for separate national legislation. Or at least that’s the idea. As we will see, there are certain areas – particularly around ‘innovative‘ or ‘specialised‘ services – where further guidance will be needed.

The Draft Regulation will be an important development for the entire communications industry, whether telecoms operators and internet service providers, content and app developers, or other forms of service provider that make use of communications networks to deliver their services. It will also affect all of us as users of online services. So where will your particular business in the communications supply chain sit in the new EU order? What are the risks and pitfalls going forward? We discuss these questions in this and two other articles.

In this second article in our series, we examine what the principal issues are in the Draft Regulation, and discuss tricky issues around innovative or specialised services and the Draft Regulation’s approach to zero-rating.

In the first article in this series we look at how the Draft Regulation defines (or attempts to define) net neutrality, and in the third article we discuss the various competing stakeholder interests in the Draft Directive and what it all means for players in the communications sector.

What are the principal issues in the Draft Regulation?

First of all, it’s worth reminding ourselves of the legal context in which the rules are being adopted. The particular legal instrument chosen is a ‘Regulation‘, and as such, the rules will apply directly under the national law systems of all EU Member States, without further national legislation needed to incorporate them. The use of a Regulation (as opposed to a Directive) was a clear signal from the EU as to the importance attached to the rules, as well as an attempt to minimise the potential for significant divergences between the various EU Member States.

This does mean that there is no scope for industry and national telecoms regulatory authorities (NRAs) to influence the application of the rules, as there are some areas where the current text lends itself to different interpretative approaches. Given that, it is important that everyone understands what they can and cannot do under the Draft Regulation, and where nuances might lie. For example, although the position on internet service providers’ (ISPs) ability to conduct traffic management measures is pretty fixed, the position on ‘innovative‘ or ‘specialised‘ services is much less clear, and may be one where NRAs will still be able to flex their muscles, and where industry may seek to convince their own particular NRA to take a more ‘flexible‘ approach.

The principal issues at stake under the Regulation are:

• Traffic Management
• Innovative or Specialised Services
• Zero-Rating

1. Traffic Management: when it is reasonable?

Traffic management (i.e. the ability of an operator or ISP to exercise control over its network configuration so as to better manage traffic on the network, for example by slowing down certain forms of non-priority traffic such as SMS messages to avoid congestion and enable voice calls to be delivered) is allowed but only in very limited circumstances, such as (a) on the basis of a court order, or (b) to preserve the integrity and security of the network, or (c) prevent / mitigate the effects of temporary or exceptional network congestion. Any traffic management conducted must comply with standard EU concepts of reasonableness and proportionality: for example, in terms of duration and extent of the measures.

In deciding whether or not individual traffic management measures are ‘reasonable’, NRAs are required to have due regard to guidance in this area issued by the Body of European Regulators for Electronic Communications.

The ability for individuals to request that certain material is blocked (for example, active parental control) did not make its way into the final text. For the UK, this could impact on ISPs’ ability to provide an adult filter. It is not clear why the EU felt that end-users should not be able to make their own choices about what they do and do not want to see.

2. Specialised services: the tricky issue of innovative services requiring enhanced level of quality

The concept of ‘specialised services‘ was a difficult issue from the start of negotiations on the Draft Regulation. The actual term ‘specialised services‘ has been dropped but that doesn’t mean the concept has disappeared. Instead, the main text still envisages the ability for telcos and ISPs to offer guaranteed delivery for certain types of ‘innovative services‘ i.e. enabling prioritised delivery of these services over the more general internet traffic.

This is subject, to the following provisos:

• these services must require an enhanced quality of service (or as the text of the Draft Regulation says, must be optimised for specific content, apps or services, or combination of these);
• in guaranteeing their delivery, this must not detract from the overall functioning of the open internet; and
• the services must not be usable or offered as a replacement for internet access services.

Examples of the types of innovative services the EU seems to have in mind, include:

• IPTV;
• high-definition video-conferencing;
• healthcare services such as telesurgery; and
• automated driving.

It is unclear how other types of services might fare. At present, there is little guidance on matters such as:

• What level of ‘enhanced‘ quality or ‘optimisation‘ needs to be present for services to qualify?

For example, one can see obvious merit from the consumer’s perspective for applications such as telesurgery and certain aspects of automated driving (for example, eCall) being given priority, without app owners having to pay for this priority. However, some critics have argued that it is less obvious as to how the EU has reached the same conclusion with for example, high definition video-conferencing and what the consumer harm may be in enabling industry players to reach their own commercial deals on delivery of this type of traffic.

• How will the distinction between necessity versus desirability be determined?

At what point will the proposed innovative services detract from the overall functioning of the open internet? Or, as the Commission put it in its Fact Sheet (30 June 2015) ‘such services must not be sold as [a] substitute for the open Internet access, they come on top of it‘.

The Commission’s distinction between internet access services (or access to the internet) versus services that run on top of the underlying internet access (services on the internet) seems uncontroversial, but how will this work in practice? What about the large number of services that are sold alongside internet access as part of a wider package? For example, does this mean that in order for such services to avoid falling foul of the rules, ISPs and content developers will need to split the access element from the content? And even if they do, will this be sufficient?

The Dutch experience in the Authority for Consumers & Markets’ case against Vodafone Netherlands published in the early part of 2015 suggests that splitting is unlikely to be accepted by regulators. The Dutch regulator, the Authority for Consumers & Markets (ACM), rejected Vodafone’s argument that the HBO-GO app (which facilitated viewing of certain TV series, films & documentaries on three devices) and which was offered for free as part of a Vodafone 90 day promotional offer, qualified as a separate or “standalone” service (which would not be subject to the Dutch net neutrality rules). According to guidance issued by the ACM a “standalone” service is one which encompasses internet access to one single application or content-only service (i.e. email or a music streaming app). However in the Vodafone case, the relevant television channels were offered as part of a bundle with other services. The Vodafone offer was found by the ACM to have breached the Dutch net neutrality rules, resulting in a fine of Euro 200,000 for Vodafone.

The above definitional issues around when a service may qualify as an innovative service and other issues may be addressed during finalisation of the Draft Regulation. For example, this might be covered in further discussion of the recitals before the full European Parliament vote (anticipated to be at the end of October 2015).

Zero-rating

A particularly controversial aspect of the debate around the Draft Regulation has been the extent to which ISPs should be able to zero-rate data. For example, by providing data for free, or by compiling offers so that certain data usage will not count towards a user’s overall, individual data allowance. We are all familiar with these types of offers, particularly in the Pay-TV sector where certain channels may be included for free as part of a wider introductory offer.

Although these types of offer look to be pro-consumer, critics warn that they constitute a form of price discrimination and, over time, can be detrimental to consumers and to competition in the marketplace. The idea underlying this argument is that: (a) offering services for free ‘interferes‘ with an end-user’s right to choose content of his/her choice (i.e. he/she is not exercising truly free choice in real terms, as he/she will be ‘guided‘ towards the free content); and (b) if such offers are rolled-out on a sufficiently wide scale, and for a sufficiently long enough period, they will displace other paid-for content which could then become ‘blocked-out‘ of the market.

Critics of these offers are concerned that they could have a particularly pronounced impact on smaller start-ups which may not be able to negotiate for their content to be zero-rated, and are therefore prevented from launching. For this reason, earlier versions of the Draft Regulation (specifically certain wording in the recitals) suggested that zero-rating could result in a distortion of competition, and as such should be prohibited – as is the case in The Netherlands and Slovenia.

However, the debate has moved on, and the 30 June 2015 text (which has been substantially confirmed by the version reflecting the Council’s position on its first reading that was published on 23 September 2015 and formally adopted on 1 October 2015) does not contain any specific reference to zero-rating or a ban on zero-rating.

This seems welcome, since in some cases, offering new – as yet untested – content for free may be the only way to get consumers to take-up this type of offering i.e. this may be the ‘leg-up’ that these start-ups need to get to market. This seems to have struck a note with those involved in the draft Regulation. For example, the Commission’s Fact Sheet (30 June 2015) specifically states that ‘zero-rating does not block competing content and can promote a wider variety of offers for price-sensitive users, give them interesting deals, and encourage them to use digital services‘. However, it does caution that commercial practices must not in practice lead to situations where end-users’ choice is significantly reduced and that NRAs will therefore have to monitor and ensure compliance with the rules.

(1):- Proposal for a Regulation of the European Parliament and of the Council laying down measures concerning open internet and amending Regulation (EU) No 531/2012 of the European Parliament and of the Council of 13 June 2012 on roaming on public mobile communications networks within the Union, whose text was agreed on 30 June 2015. 

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