Month: June 2015

Lights and darknesses of the European net neutrality deal, simply explained

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Little by little, I am getting information about the reform of the net neutrality which today was agreed in principle by Council and European Parliament. It is still a political agreements, while the European Commission has been required to write down the detailed articles – therefore things may still change a little.

Let’s start with the best points:

Open Internet is safeguarded with a very wide and fundamental wording: “End-users shall have the right to access and distribute information and content, use and provide applications and services and use terminal equipment of their choice, irrespective of the end-user’s or provider’s location or the location, origin or destination of the service, information or content, via their internet access service”. There is no explicit reference to the term “net neutrality” that the European Parliament liked a lot, however this is more symbolic/political issue rather than a substantial one.

The neutrality principle is however then elaborated in a more sophisticated way: “Providers of internet access services shall treat all traffic equally, when providing internet access services, without discrimination, restriction or interference, and irrespective of the sender and receiver, the content accessed or distributed, the applications or services used or provided, or the terminal equipment used”. This should compensate the lack of the “net neutrality” wording, I believe.

Network management practices are clearly regulated: they must be reasonable, meaning that they must be transparent, non-discriminatory, proportionate, and shall not be based on commercial considerations, i.e, they should not be anticompetitive. In other words, an ISP cannot discriminate the traffic just to unbalance a competing online service (like in the case of traditional voice and sms, which may be jeopardized by VOIP and chats). In addition, ISPs shall not, in general, block, slow down, alter, restrict, interfere with, degrade or discriminate between specific content, applications or services, apart from some exceptions provided by law.

Then, we go to the grey area:

Specialized services are allowed, but on the conditions that the network capacity is sufficient to provide them in addition to any internet access services (best effort). Remarkably, in US specialized services are prohibited in principle: there they are intended as a prioritization performed for discriminatory or anticompetitive reasons. The fact that the European rule is lighter than the US one, is likely due to the fact that in the EU there is more competition in the fixed access, thanks to the wholesale regulation allowing the users to choose a plurality of fixed ISPs (while in US there is a quasi-monopoly in the access).

In any case, specialized services cannot be usable or offered as a replacement for ordinary internet access services, and shall not be to the detriment of the availability or general quality of internet access services for end-users. This means that dominant ISPs may not use specialized services to affect the nature of the Internet, since they will be obliged to first offer unrestricted best effort Internet, and then managed services. This rules should, in principle, avoid the emergence of a 2-tiered Internet, since an affordable best effort Internet must be guaranteed in nay case. However, how to apply this rule in practice may cause some controversies, since the nature of ordinary best effort Internet may vary depending on the deployment of the networks and related technology, country by country. In the mobile sector it will also depend on a variety of circumstances (spectrum availability, saturation cells ecc). Thus, it will be up to the national regulators to find a solution case by case, with the possibility to refer to the Court of Justice of the European Union to render an interpretative ruling. Berec could also be request to intervene to adopt some guidelines. To sum up, I foresee plenty of litigations.

And finally, the dark side of the net neutrality reform:

Zero-rating practices are allowed. Such clauses allow an ISP to indirectly discriminate competing or non agreed services simply by differently charging the price of the Internet connectivity used to provide them. in the reform there is a general clause whereby contractual agreements about volumes, price and speed should not affect the freedom of users to get the services they want, but this is a too vague wording to say that zero-rating practices may be challenged when they are anticompetitive. This is the most controversial part of the reform. I would expect the European Parliament to protest against.

Finally, one could wonder whether current national legislation prohibiting zero-rating practices, such the ones in the Netherlands and in Slovenia, will be considered consistent with the new regulation. There is a clear risk that they may be challenged in front of national courts for being inconsistent with EU law.

That’s all folk, for now

The (quasi) end of roaming, i.e. the unpredictable consequences of the Grexit

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Believe it or not, the Greek financial drama was fundamental to finalize today the long-awaited European agreement for the end of roaming surcharges and the regulation of net neutrality. Just few weeks ago several signals in Brussels suggested that Council and European Parliament were unable to find a compromise on the text negotiated in the Trialogue. The Latvian Presidency was already preparing the hand-over to the Luxemburger successors. Then something happened. The dramatization of the Grexit and the controversial debate, on both traditional and social media, about the role of the European Union for the destiny of its citizens, changed the scenario: Council and Parliament realized that it was time to provide evidence of what happens in Brussels beyond discussions. And the (political) agreement about the Single Telecom Market, the unlucky, controversial and watered-down invention of Commissioner Kroes of September 2013, is now close to the end.

Next steps will be the formal and legal ratification of the agreement. However, while there is no doubt about the final approval by the Council, the position of the European Parliament, which will have to approve the deal in plenary session, remains a bit unpredictable: in fact, it is clear that the representative of the Assembly have been surrending to the Council, and some MEPs will be unhappy. Therefore, it is still possible that the plenary session may disregard the political agreement on the grounds that the deadline of the roaming surcharges and the details of the net neutrality framework are not satisfactory. Let’s see.

In any case, as regards the roaming deal, it must be stressed that the even beyond mid-2017, i.e. the date fixed for the end of the roaming surcharges, the problem will be not completely over. In fact, telecom operators will retain the right to continue to charge roaming surcharges vis-à-vis anomalous or abusive behaviors of consumers. Whats’ about? It is the case, according to the fact sheet of the Commission, when:

for example, if the customer buys a SIM card in another EU country where domestic prices are lower to use it at home; or if the customer permanently stays abroad with a domestic subscription of his home country”.

One could argue why such a behavior should be considered abusive! To the opposite, buying services from any operator in the EU, and using such services everywhere, should the ultimate objective and dream of this integration process! However, this is a political compromise, i.e. a kind of political price paid by the European institutions to the big telecom operators which do not want roaming surcharges to disappear completely, otherwise small and competitive operators could start to offer mobile services from a country to another (for instance: a Finnish mobile operator selling SIMs to Italian customers, and viceversa) jeopardizing the national mobile oligopolies. That’s life.

In other words, in mid-2017 the end of roaming surcharges will be limited to a so-called “fair usage”, that is to say a minimum amount of traffic that operators have to guarantee without roaming surcharges, while the exceeding traffic will be more expensive. Who will decide the quantity of the surcharge? Council and European Parliament are still finalizing the text. The likely option should be a minimum fair usage allowance to be decided ex-ante by Berec, the European regulators agency.

In both cases, the market will react depending on the competitive conditions resulting out from the final legal text: if the entire framework is sufficiently competitive, i.e. provides affordable and low wholesale tariffs allowing all operators to compete everywhere in the EU, than there will be a fierce competition in providing customers with the best and wider fair usage offer. By contrast, if the final legal text is not competitive, i.e. mobile dominant operators will be the only one, thanks to high and non competitive wholesale tariffs, to drive the market, their interest will be at minimizing, as much as possible, the fair usage clause.

Infringing net neutrality is not the same in US or EU

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AT&T, one of the bigger US telcos, has been heavily fined by the FCC for alleged practices of throttling. In short, FCC found that when AT&T’s customers used up a certain amount of mobile data watching movies or browsing the Web, the ISP “throttled” their Internet speeds so that they were much slower than normal. Apparently, this slow-down practice was not properly advertised in AT&T’s contractual conditions and therefore FCC adopted the decision on the grounds of lack of transparency. AT&T will surely challenge the decision assuming that their throttling policy was properly communicated to users, here their legal position. More details about the case can be also found here.

For the US market this is a very important leading case, although one could argue that the fine is not a real deterrent, considering  the dimension of the US market and the size of a telco like AT&T. However, it is a strong signal, also in the light of the new FCC net neutrality rules recently entered in force. Such rules, by the way, do not apply to the case at stake, while the previous 2010 net neutrality rules, focusing on transparency, apply instead.

A similar case did not occur yet in the EU, where transparency rules indeed exist (art. 20 of the Universal Service Directive) but concretely never provoked relevant, controversial decisions in the area of net neutrality. More detailed transparency rules may be adopted in the frame of the current Single Telecom Market package, one chapter of it is dedicated to net neutrality indeed. However, since this legislative proposal is currently blocked in Trialogue negotiations, without clear expectations of prompt final approval, the situation is not due to change for the time being. This means that, apart from surprises, for long time European consumers will never get a proper shield against net neutrality violations.

Unlike US, in the EU the possibility to tackle net neutrality violations is currently quite problematic. As stated above, transparency rules are quite generic, while antitrust enforcement is difficult, because in oligopolies markets (such as the mobile European markets consisting of 3 or 4 operators) one should first demonstrate the existence of a joint dominance, otherwise no sanctions can be imposed. Antitrust sanctions may normally be imposed against a single dominant operator, eventually in the fixed markets then. In addition, starting antitrust proceedings for a mere net neutrality practice is quite bundersome.

As a result of the above, in the EU net neutrality sanctions are rare and not relevant, with the exception of these countries where specific national legislations have been enacted, such as Slovenia and the Netherlands (in the matter of zero-rating practices, by the way). This is the reason why, should the Single Telecom Market package fail, most European countries will likely start, in the future, autonomous initiatives in order to grant a proper protection to own citizens, following the Dutch and Slovenian examples. A nightmare for mobile and fixed incumbent in the EU.

NB: an AT&T lobbyist contacted me saying that FCC’s decision is wrong and me as well. No doubt about, however what really matters for me is the comparison between the US and EU net neutrality enforcement system, while I can’t judge what will be the final outcome of this case after the last appeal. However, I assume that when FCC adopts a so heavy pecuniary decision, they may be well convinced about the good grounds of the case.