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What the European institutions will not say about the disguised end of roaming surcharges: the end of mobile competition and the rise of mobile tariffs

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BREAKING NEWS: DURING THE NIGHT THE TRILOGUE AGREED UPON EURO 7,7 EURO/GIGA TO FALL UP TO 2,5 EURO/GIGA IN THE NEXT YEARS. I REGRETTABLY CONFIRM THE VIEWS EXPRESSED IN MY BELOW POST

In the night of January 31, 2017 representatives of European Parliament, Council and Commission are set to agree on the maximum levels (so-called “wholesale roaming caps”) mobile operators can charge each other for access to their networks in order to allow customers to use services when traveling abroad without paying roaming surcharges (so called roaming like at home).

While everybody agrees that the end of roaming surcharges will be beneficial for all consumers, it is sad to see that the selected mechanism will affect competition and allow a rapid increase of mobile tariffs everywhere in Europe. This is due to the high level of wholesale roaming caps that will be agreed tonight, which is expected to be between 7 and 8,50 Euro per Gigabyte (and with a weak glide path). Since most of retail tariffs in Europe offer one Gigabyte for 1 or 2 euro, it is evident that most operators will not be able to recover their costs when providing roaming to their customers. In order to prevent losses, they should be increasing domestic retail offers, or even stopping providing roaming services. Others may invoke a sustainability mechanism allowing them to continue to apply roaming surcharges in order to be able to pay the wholesale roaming caps.

Big mobile operators will be less affected by the level of wholesale roaming surcharges, thanks to the ability to compensate reciprocally the roaming traffic in the frame of established bilateral agreements (someone call them cartels). However, thanks to the struggles and pains by small and competitive mobile and MVNO operators, big mobile ones will have less competitive pressure and may start to increase price back, as it is already happening by the way.

Even worst: because of a complex mechanism provide by arts. 4.2. and 4.3. of Regulation 2016/2286 (the implementing rules enacted by the European commission last December to regulate in details this matter), the highest the level of wholesale caps, the fewer the roaming traffic exempted  by surcharges that users my benefit in case they have an unlimited Internet plan or a pre-paid sim card.

The European institutions are aware of this poisoned effect of the “end of roaming”, however they have not been able to agree on lower wholesale caps due to various reasons.

The European Commission, in lack of credibility, needs to officially declare the end of roaming at all costs, no matter for the side effects. President Juncker took a personal political initiative on this matter in order to be able to set an historical precedent and imposed the end of roaming by way of legislation, although the offices of the Commission (especially the one sin DG Connect) were well aware of the side effects of this result and have been working in order to minimise them. Nevertheless, the political pressure prevailed over reality and basic economics.

The Council, i.e. the governments, is splitted but, at the end, is caught by some Member States (France and Germany) who want to protect their mobile market and oligopoly therein while others (the Mediterranean countries) are willing to continue to monetize some cash brought by summer tourists.

The Parliament has been much more fighting and one should recognize that the rapporteur, the Finnish Miapetra Kumpula-Natri, has been trying to propose more competitive wholesale caps (starting at 4 Euro per Gigabyte in 2017 and down to one Euro in 2020) together with the shadow rapporteurs of the other political parties. The EPP issued a crystal clear press release making clear that wholesale caps should be below retail tariffs, not above.

However, even these commendable efforts have been vain due the intransigence of Council and Commission.

What the end of Renzi government means for the Italian digital and ultra-broadband sector

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The resignation of Matteo Renzi following the defeat at the Constitutional Referendum of December 4th, 2016, creates the question as how Italy will ever fill the gap with other developed nations in the matter of digital services and ultra-broadband networks.

Whether you like him or not, there is no doubt that Matteo Renzi has been the first Italian premier showing a concrete interest vis-à-vis Internet and digital infrastructures, putting them at the core of the governmental policy. Before him, Italian governments have been merely dealing with television and broadcasting regulation, while the development of the digital sector was never a priority. The only serious concern of previous governments in the area of telecoms was the ownership of Telecom Italia, whether the company will become a subsidiary of whom. But no Italian premier ever took action or made pressure to force Telecom Italia to invest in high-speed networks. As a result, the traditional Italian telephony company has been relying, longer than other European incumbents, on the old-fashioned and depreciated copper telephony network rather than installing new fibers networks in massive way. No need for that.

With Matteo Renzi, the situation changed dramatically. It might be for a matter of age or personal experiences, the former mayor of Florence never liked very much Telecom Italia and its bills. Renzi launched an ambitious ultra-broadband plan to fill the gap in the vaste provincial and rural areas of Italy (the European Commission cleared the plan last June). Telecom Italia was offered to benefit of that plan and also to buy Metroweb, a company (controlled by Cassa Depositi e Prestiti) installing and offering ultra-broadband networks in big Italian cities. However, government and Telecom Italia did not find a common agreement on important conditions: while Renzi was aiming at strongly modernizing and re-shaping the Italian telecom market, Telecom Italia preferred to keep alive the copper network as much as possible and did not want to hear about structural separation of its network (a possible outcome when combining its network assets with Metroweb). Telecom Italia was probably thinking to be winning at the very end, thanks to the traditional instability and weakness of Italian governments, but it was wrong.

The stallo situation was “sparigliata” (broken) by the entry into the market of Enel, the Italian energy utility which launched a plan for ultra-broadband investments and offered to buy Metroweb. In the meanwhile, the Italian government granted a State-owned company, Infratel, the task to install ultra-broadband networks in rural areas. The emergence of new network operators changed dramatically the landscape: Telecom Italia ended up with “melina” and started to seriously invest in fibers.

Beside that, Renzi’s governments has been strongly intervening in the digital sector with various legislations in the matter of net neutrality, online platforms, sharing economy; they finally appointed as Digitalist Chief Diego Piacentini, a seconded senior executive of Amazon, to coordinate and make progress the digital agenda in Italy. The choice of Matteo Renzi’s about Diego Piacentini was challenged by someone because of potential conflicts of interests: nevertheless, no one could object the professional level of the Chief Digitalis and the need to coordinate the various Italian agencies competent for digital.

One would wonder whether the above was just a transitory acceleration and now Italy will fall back into traditional inertia. The main winner of the Constitutional Referendum, the 5-Stars Movement, has been traditionally relying on the Internet rather then other medias. However, despite some individual positions, it is not clear whether this political party has a concrete and coherent industrial policy for ultra-broadband and the digital sector in general. Irrespective whether they will become a force of government, the 5-Stars Movement and its leader, the comedian Beppe Grillo, should start to think about and say something to the people.

The end of domestic mobile consolidation in the EU

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Rumors say that tomorrow 4 of May (or later during the month) the European Commission will render a negative  opinion (a prohibition, in other words) about the merge in UK between the mobile operators 02 (Telefonica) and Three (Hutchison Wampoa).

If confirmed, this move will not come unexpected because in many instances the Competition Directorate (DG Comp) of the European Commission has suggested that mobile consolidation in mobile domestic market is not welcomed. Instead, mobile operators should  rather look at cross-border consolidation, creating pan-european operators able to compete in a cross-borders scenario that will become more and more actual when (and if) the roaming surcharges will be phased out in June 2017. At that point, European operators may be able to provide mobile subscriptions to be used in a plurality of European countries and, as a result, consumers my theoretically choose a foreign mobile operator even for domestic needs (this situation, named permanent roaming, is however contested and sometimes considered even “abusive”. This is another story, for now).

The UK precedent will create a fundamental landmark case for the European telecom sector and, as a consequence of that, it is unlikely the similar mergers (see for instance the current one in Italy between Three and Wind) will ever be approved in the future.

Concerned mobile operators will probably complain that the “4 to 3” consolidation is necessary in UK, like in Italy or France, to boost network investments. However, it is crystal clear that the European Commission has heard and carefully considered this argument, without finding, however, concrete evidence. If the investment argument was credible, the merging entity should have accepted the Commission’s desired remedy, that is to say the creation of a new mobile operator through the transfer of spectrum, network resources and customer base by the merging entities. Such new mobile operator should not have damaged the investment plan of the merged mobile operator. By disregarding this option, Hutchison and O2 have reinforced in the Commissions the suspect that the reduction of mobile operators is merely focussed on limiting competition and increasing margins (to the detriment of consumers).

For future guidance, one would hope that the European Commission will provide a robust reasoning for its decision. Such reasoning missed in a precedent case, the aborted merger in Denmark between Telenor and TeliaSonera, because the parties abandoned the transaction before getting a formal rejection. By contrast, now it would important that the Commission clarifies that competition conditions are more important than “magic numbers”, such as 3 or 4 operators. What really matters, for competition, is a market structure encouraging the players to really compete and gain new customers. In mobile markets this surely happens when markets shares are unbalanced and there are small players, mobile operators but also MVNO, fighting to increase their position.

This is the reason why also the envisaged merger in Italy between Wind and Hutchison is close to fail (a dead walking man, to be clear. Fact is, following the potential merger the 3 Italian operators left, such as TIM, Vodafone and Three/Wind, would detain balanced markets shares – a scenario that, according to the European Commission, facilitate mutual collusion rather than competition.

Two items will probably remain opened after the (likely) rejection decision, tomorrow or in the next weeks:

1. did the European Commission sufficiently considered the MVNO remedies offered by the parties? It seems that DG COMP has never believed too much in MVNOs, disregarding the competitive pressures that such MVNOs may exercise over mobile operators. Indeed, DG COMP has the power to impose strong MVNO remedies, instead of imposing the creation of a new mobile operator, and the efficiency of such virtual operators rely on the mobile access conditions that the European Commission itself may decide.

2. In the future there will be a discrepancies between countries (Germany, Ireland and Austria) where mobile mergers have been approved thanks to the previous laissez-faire of DG COMP (when headed by Almunia) and countries where such mergers are going to be prohibited due to the stricter approach of the same DG COMP (now headed by Vestager). Should the European Commission start to think how to redress passed mistakes?

And what about #brexit? Many commentators  may argue that the Commission’s decision my be seen as an attempt to please UK. I would say that this is just a coincidence: OFCOM and DG COMP have similar view about mobile consolidation, although the reason for each may be complex: OFCOM wants to keep 4 mobile operators to protect consumers and to avoid the need to intervene with regulation into the mobile market; DG COMP wants to boost pan-european consolidation, and the best way to do it is to forbid the domestic one.

European court rushes in rescue of hyperlinks

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An opinion rendered today by the Court of Justice of the European Communities appears very innovative with regard the legal status of hyperlinks and their relation with copyright law. If confirmed in a final judgment, the opinion is susceptible to provide additional and substantial certainty to the development of Internet and digital businesses.

According to Advocate General Wathelet who rendered an opinion in the Case C-160/15 (GS Media BV v Sanoma Media Netherlands BV and Playboy Enterprises International Inc. and Britt Geertruida Dekker) the posting of a hyperlink to a website which published photos without authorization does not in itself constitute a copyright infringement. In particular, the motivation of the person who placed the hyperlink and the fact that this person may know or not whether the initial posting was authorized, is irrelevant.

The Advocate General seems to see the legal status of hyperlinks quite differently from what the European court thought in the previous case Svensson (2014):

  • in the latter case, the European court confirmed that hyperlinks are act of communication under the Copyright Directive, and therefore they need the authorization by the right holders of the content which the hyperlink is referring to; then, however, the court elaborated a reasoning for an exception (if the content referred to is already in the public domain, then the authorization is not needed);
  • in the present case, the Advocate General states that “hyperlinks which are placed on a website and which link to protected works that are freely accessible on another site cannot be classified as an ‘act of communication’ within the meaning of the Directive”.

This opinion of the Advocate General, if confirmed in the final judgement by the European Court, would add clarity clarity and legal certainty to any Internet users, whether a business or even an individual, using hyperlinks to refer to other pages or content in the Internet. By contrast, a different rule would jeopardize any initiative in the Internet because making a preliminary check whether a given content or image has been initially communicated to the public in licit way, would be practically impossibile.

This principle may have a deep impact on the dynamics about fight against digital piracy: the content industry would then be more encouraged in targeting websites were unauthorized content has been intentionally published, asking for removal, rather than targeting thousand of websites which, by simply referring to the initial one with a simple hyperlink, may not know about the lawfulness of the situation.

The same principle may play in favor of innovative digital business models, including platforms and search engines, which base their business in connecting the content spread in the Net.

One should remember the European institutions are currently revising the Copyright Directive and, in case a reform is launched, the present judgment will be quite relevant with regard to the rules applicable to hyperlinks.  Content industry is sometimes asking to restrict then usage of hyperlinks by adding a special liability for that – a system which would seriously affect any business and individual initiative in the Internet.

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As regard the legal case and the facts, one should remember that pursuant to the Copyright Directive 2001/29, each act of communication of a work to the public has to be authorized by the copyright holder. The question is whether a simple hyperlink may be considered an “act of communication”.

Sanoma, the editor of the monthly magazine Playboy, commissioned a photoshoot of popular Dutch character, Britt Dekker. A website named GeenStijl published advertisements and a hyperlink directing viewers to an Australian website where the photos in question were made available without the consent of Sanoma. Despite demands from Sanoma, GennStijl refused to remove the hyperlink in question. When the Australian website removed the photos upon Sanoma’s request, GeenStijl published a new advertisement which also contained a hyperlink to another website on which the photos in question could be seen. That site also complied with Sanoma’s request to remove the photos. Finally, internet users who frequent the GeenStijl forum posted new links to other websites where the photos could be viewed.

According to the solution suggested by the Advocate General, the behavior of Geenstijl was lawful, since the request for removal should have been addressed to the website initially posting the content.

NB: the Advocate General’s Opinion is not binding on the Court of Justice. It is the role of the Advocates General to propose to the Court, in complete independence, a legal solution to the cases for which they are responsible. The Judges of the Court are now beginning their deliberations in this case and a judgment will be given at a later date. Normally, in the 80% of the cases the judges confirm the legal solution suggested by the Advocate General.

Terror does not stop the Internet

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The images of the departure hall of the international airport of Brussels are devastating, and these of the Maalbeek metro as well. Today’s terrorist attack in Brussels was a shot to our European heart, not just to Belgium. Airports and central metro stations were full of traveling expats who daily work within the European institutions, and we expect most of victims and casualties to be counted amongst the international presence in Brussels.

Notably, while traditional telephony lines, especially mobile, have encountered inconveniences following the attack (due to saturation), Internet connection have continued to work properly and people have been able to communicate via WIFI and mobile access: thus, mobile VOIP and social chats have been the fundamental, effective way to stay in touch and inform the people of the current situation.

This reminds to us that the Internet was created to resist to emergency situation and disruption of communication due to devastating events, and it is working properly still now; while all the discussions about regulated and top-down universal service are a waste of time (and money)

 

EU dataflow: the new Privacy Shield is (almost) born

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On February 2, 2016 the European Commission announced in a press conference in Strasbourg to have found a political agreement with the US authorities to allow the transfer of personal data from UE to US. The agreement, named “US/UE Privacy Shields” (the hashtag is already a star in the web, and in Twitter in particular) will replace the Safe Harbor agreement invalidated by the Eu Court of Justice last October 2015.

The enthusiasm by European authorities and corporations (US in particular) following this announcement is well comprehensible. In fact, after the annulation of the Safe Harbor Agreement, the entire UE/US business fall into a serious uncertainty, with the national data protection authorities being empowered to chase whoever and whatever involved in transatlantic business. The problem is dramatic because a huge amount of businesses rely on the transfer of data from UE to US: to make an example, most of European retailers use US platform to bill their clients, therefore without a clear data transfer framework most if such businesses are impaired, even if they refer to trade within the UE.

Nevertheless, it is still too early to predict whether the announced agreement will solve the pending problems. The announcement concerns just principles, while the precise details of the new framework need to be further negotiated, and then incorporated into a final European decision (a so-called “adequacy decision”). In addition, most of the commendable obligations required upon the US authorities should be confirmed in writing.  Not surprisingly, the announcement of the Commission was followed by skeptical reactions by various top characters of the #SafeHarbor novel, such as  Mr. Scherms, the Austrian guy who started there entire matter with the recourse to the European court, MEP Albrecht, the rapporteur of the new European data protection regulation, and even Mrs Reding, the former EU Commissioner who started the reform of data protection in the EU.

One could say that the main scope of this announcement to gain some time, since the national data protection authorities granted to the Commission a 3-months period (expiring at the end of January 2016) before the national data protection authorities start to investigate (and eventually impose sanctions) into the EU-US data flow business. If it is, we could say that the escamotage worked, since the Article 29 Working Group (basically the bodies representing the data protection authorities) has welcomed the political agreement and encouraged the Commission to go ahead (although no evaluation on the merits has been given, since precise details are not fixed yet). However, the chief of the French data protection authority has been much more clear, by stating that “we can’t just accept words on privacy shield”.

Thus, it is still unclear whether this agreement will solve the crisis or will just open a new round trip to the European Court of justice. Some parts of the announcement seem to disclose important progress from the uS side, such as:

For the first time, the US has given the EU written assurances that the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards and oversight mechanisms“.

Mass surveillance and unlimited access to personal data are a crucial matter between UE and US: it is a delicate legal issue – being the main ground referred by the European court to invalidate the Safe Harbor agreement – but also a matter for political discussion, following the Snowden/NSA scandal.

The further steps will not be easy at all: Vice-President Ansip and Commissioner Jourová will prepare a draft “adequacy decision” in the coming weeks, which could then be adopted by the College of the European Commission after obtaining the advice of the Article 29 Working Party and after consulting a committee composed of representatives of the Member States. In the meantime, the U.S. department will make the necessary preparations to put in place the new framework with the obligations of their side.

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As regard the main part of the agreement, here an extract from the PR of the Commission:

  • Strong obligations on companies handling Europeans’ personal data and robust enforcement: U.S. companies wishing to import personal data from Europe will need to commit to robust obligations on how personal data is processed and individual rights are guaranteed. The Department of Commerce will monitor that companies publish their commitments, which makes them enforceable under U.S. law by the US. Federal Trade Commission. In addition, any company handling human resources data from Europe has to commit to comply with decisions by European DPAs.
  • Clear safeguards and transparency obligations on U.S. government access: For the first time, the US has given the EU written assurances that the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards and oversight mechanisms. These exceptions must be used only to the extent necessary and proportionate. The U.S. has ruled out indiscriminate mass surveillance on the personal data transferred to the US under the new arrangement. To regularly monitor the functioning of the arrangement there will be an annual joint review, which will also include the issue of national security access. The European Commission and the U.S. Department of Commerce will conduct the review and invite national intelligence experts from the U.S. and European Data Protection Authorities to it.
  • Effective protection of EU citizens’ rights with several redress possibilities: Any citizen who considers that their data has been misused under the new arrangement will have several redress possibilities. Companies have deadlines to reply to complaints. European DPAs can refer complaints to the Department of Commerce and the Federal Trade Commission. In addition, Alternative Dispute resolution will be free of charge. For complaints on possible access by national intelligence authorities, a new Ombudsperson will be created.

 

How the European copyright rules help the US entertaining industry to make more money in the EU rather than in US

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Tomorrow December 9th the European Commission will publish a copyright package consisting of a communication on the copyright reform plus 2 legislative proposals (about content portability and contractual conditions respectively).

On the basis of leaks circulated in the last weeks, I would tend to say that the European Commission is slowing down with the copyright reform, and that the copyright package will be much less ambitious than expected, at least if we compare it with the declarations made when the Digital Single Market (“DSM”) strategy was announced and launched in May last. For instance, targeting geoblocking and improving of cross-borders availability of online content was one of the karmas marketed by Junker and Ansip to explain the need for a Digital Single Market. By contrast, if you look at what is going to be really proposed tomorrow, you will find out that:

– reference to geoblocking has mostly disappeared;

– in order to target cross-border issues, just a content portability proposal is made. This proposal is good and welcomed but, depending on the actual duration & conditions of the portability*, the benefits for the consumers may be very limited (in other words, citizens may encounter the same disappointment already with roaming, when it was announced that roaming surcharges will disappear in 2017 and then found legal details whereby roaming surcharges to continue to exist much beyond that time);

– with regard to important technical and legal subjects to be clarified or harmonized (private copy, exceptions, act of communication to the public ecc) the Commission’s position consists in considering possible actions in the future;

– in general, the Commission is proposing a “gradual approach” that, in political terms, means, I fear, “wait and see” with regard the most important problems.

Fact is, this disappointing scenario may be due to the fact that there internal disagreement within the European Commission as to how much to tackle the fragmentation of the European content market: VP Ansip, VP for the DSM, seems to be much more liberal than Oettinger, Commissioner for the digital sector. In addition, the Commission’s offices may fear that a too strong proposal would be later destroyed by Member States and EP, which are mostly under the pressure of the “content industry”: broadcasters, distributors, producers. In fact, the content industry is really strong in defending its prerogatives (i.e. the territorial segmentation of their business, in order to increase profits) on the excuse that this status quo is necessary to protect the production of European movies and the European culture in general. But then they do not explain why they are advocating geobklockinbg also for US movies, i.e. the big part of content watched by European users. In other words, the current fragmented system helps the US industry to make more money in Europe to the detriment of European consumers, while the same industry would not dare to impose to US citizens a fragmented movies offer through 50 american States.

Unfortunately, European Members States and European Parliament are caught by the content industry arguments, because the influence of such industry in each Member State is massive. Each government and each politician, with few exemptions, wants to protect the national industry, even when the final winner is the US content making more money in the EU than US. As a consequence of this status quo, European citizens willing to pay for legal content, but not finding what they want and buy, will be forced to go into piracy or use VPNs. Make the example of a Belgian citizens living in Italy and willing to buy Netflix Belgium, because of some features of that offer with respect to the offer of Netflix Italy. He/she would be blocked in Italy and, as an alternative, he/she should go to the pirate market to find the wanted content, or use the VPN tools. And we are talking about people willing to pay for legal content! 

As always, the potential way-outs may come just from external, unexpected actions: for instance the DG COMP directorate of the Commission, headed by Mrs. Vestager , which has independent powers and does not need Member States or EP to agree on what she does, could take a decision on a competition case (like the pending one on broadcasting) stating that territorial restriction (and related geoblocking measures) are anticompetitive; or, the legal case could be solved by the European Court of Justice. Do not forget that in the ‘70/’80 the European Court was decisive in liberalizing the European cross-border trade by declaring that distribution agreements of goods (cars, food, pharmaceutic ecc) could not prevent a consumers to buy something offered by a seller established in another member states (passive sale). A kind of intervention would be needed also for the digital single market, if politicians cannot afford it.

* The actual conditions whereby users may be accessing subscribed content on their device when traveling abroad are not clear yet. The proposal of the Commission is intentionally vague because this item will problem a battle field when discussing with Council and European Parliament. If no clear conditions are stated, the commercial practice amy be restrictive.