Net neutrality and competition rules are getting closer and closer

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JAM

The Competition Directorate of the European Commission announced to have closed an investigation about Internet connectivity market (peering and transit) without finding evidences for abuse of dominant position by the European incumbents which were investigated (likely Deutsche Telekom, Orange and Telefonica).

While the closing of the investigation is a good news for the investigated operators, the Commission makes clear that it will continue to monitor the market and that further interventions in the future are not excluded.

The investigation started after a complaint by a US carrier which contested the peering policies of main European incumbents. The complainant maintained that pricing conditions charged by telcos were abusive. A similar case shad been already dismissed by the French competition authority in 2012, while recognizing that peering policies of telcos may potentially give rise to concerns.

The case at stake has a clear link with net neutrality, although the DG COMP offices are very prudent and they intentionally avoid to mix up their case with the current debate on net neutrality pending in Brussels in the frame of Single digital Market proposal.

To better explain: incumbent telcos may potentially commit abusive practices because at the same time negotiate Internet traffic deals and control end users to which such traffic is directed or requested by (Youtube, Facebook ecc). This market is normally competitive because, should an operator rise the price in abusive way, other operators may simply change carriers, because Internet is made in this way: there are plenty of alternative routes. However, when the Internet traffic in question must be necessarily terminated upon end users (i.e. the subscriber holding the final terminal/device), then counterparts have no alternative: they must accept prices and conditions charged by the telcos controlling the connection to such end users (i.e. selling to them the Internet access). It is a kind of termination monopoly, like for voice.

In the case of the voice termination monopoly, the problem has been solved via regulation: termination must be obligatory ensured at cost-oriented prices. By contrast, in the internet sector termination is unregulated: however, competitive problems normally do not arise, because telcos operates cannot allow themselves to cut Internet traffic terminating to their clients, which otherwise may decide to change ISP in order to get the services they like (imagine a telco saying to his customer: “you will not get Youtube because Google does not pay me what I pretend to connect to your PC“) . However, it seems that peering commercial negotiations are becoming more and more difficult and some European incumbent are trying to charge more expensive prices when peering with counterparts. This may reflect an increasing weakness of competitive conditions in the European market and more strength for the incumbents, at least this may be their perspective. In Italy Telecom Italia decided to de-peer, i.e. they stopped peering at the Internet exchange point in Milan and requested everybody to peer directly with them by paying. The non-peering counterparts had therefore to deliver their traffic directed to Telecom Italia via a third transit operator, a system which may deteriorate the quality of the Internet traffic (because the routing is longer and more complex).

Interestingly, the PR of the European Commission makes clear that incumbent ISP may have interest in creating artificial traffic congestion: “The European telecoms operators which were investigated all provide internet access services to end users and often have an in-house internet transit division. This allows them to charge for interconnection capacity and, in the absence of commercial agreement with certain third party transit operators, may also have the effect that traffic from certain routes becomes congested at the point of entry into domestic networks, causing a deterioration in service quality“.

In other words, congestion for consuming-banwidth services like video streaming (Netflix) may be the result of a deliberate choice of the telco, not of scarcity of capacity. A telco may decide to reduce/limit interconnection capacity in order to force counterparts to pay more for peering. Thus, here the Commission is recognizing that incumbent ISPs may potentially create a net neutrality problem even where it should not exist.

It must be remind that in the recent times Netflix made various paid peering agreement (i.e. direct interconnection) with US ISPs like Verizon and Comcast in order to facilitate the delivery of their traffic to the related American subscribers. Although the details of the transactions ara not public, there was the suspects that Netflix was forced to made these agreement to respond to artificial congestions provocateur by the same ISPs.

The European Commission did not find abuses in the present investigation, however a clear signal has been sent to incumbents ISPs: their Internet peering policy will be closely monitored in the future.

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