The end of the world as we know it?

When the European Parliament on 27 October rejected the proposed amendments to the snappily titled ‘proposed regulation of the European Parliament and of the Council laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services’, this caused a bit of an outcry and was portrayed by some as the end of the world as we know it. The decision was labelled a ‘major blow to net neutrality’ and a vote ‘in favour of “two speed internet”’. According to these commentators, the proposed amendments would have enshrined the principle of net neutrality in European legislation wheres Europeans are now left with a watered-down commitment to an ‘open internet’ but without any guarantee that all traffic will be treated equally. They see the rejection of the amendments as a squandered opportunity to implement rules that match those that have been adopted in the US.

According to a letter to the president of the European Parliament sent the day before the vote and signed by a diverse group of tech companies and investors, adoption of the unamended Council position would not address four major problems for the European tech industry, namely:

• the ability of ISPs to offer ‘fast lanes’ to companies willing (and able) to pay for having their traffic prioritized;
• zero-rating, which allows ISPs not to count some traffic towards usage caps, which also could be used to favour particular services (such as those supplied by the ISP);
• class-based discrimination that would allow ISPs to speed up or throttle traffic depending on the service; and
• the permission to use traffic management to deal with impending rather than actual congestion.

A careful look at the textual changes that Parliament has rejected suggests that this reaction is somewhat overblown. The proposed amendments would have added some clarification and removed some ambiguity that might conceivably permit these types of behaviour.  Rejecting these proposed textual changes does, however, not mean that Parliament has turned what would otherwise have been a strong and unconditional commitment to net neutrality into a piece of legislation that strongly supports or even invites discrimination of internet traffic. It will in any case be left to BEREC to lay down guidelines for the implementation of the obligations of NRAs in relation to supervision, enforcement and transparency measures for ensuring open internet access.

So whilst the parliamentary vote does not really spell the end of the world as we know it, the strong responses from industry players should give pause for thought.  It is not free speech and equal access that appears to be at stake here, but rather commercial interests. For example, some service providers whose needs for high-bandwidth low-latency connections require substantial investments in upgrading the internet’s underlying infrastructure might strongly favour net neutrality because it eliminates the option of being asked to pay for fast lane access.

The idea that the internet should be treated like  a public utility that exists in order to serve everyone to the same standard without regard to the nature and volume of traffic that they put through the network may sound appealing.  But it ignores that the investments that have to be made in the pipes that carry internet traffic are left to commercial entities who wish to see a return on their investment.  And it is not obvious why service providers who require (or at least benefit from) more bandwidth and higher latency should not be asked to contribute to these investment costs. Being able to give preferential treatment to service providers who have agreed to contribute to some of the costs of investing in network roll-out or network upgrade might help solving co-ordination problems that could otherwise hamper investment.

Therefore, there would seem to be nothing wrong in principle with allowing ISPs to explore different charging models, some of which might involve collecting payments from service providers for traffic prioritisation. Traffic discrimination, like price discrimination, can have benefits and improve efficiency, provided that discrimination is not merely the exploitation of market power1 to extract rents from customers, and that the traffic management and prioritization strategies pursued by ISPs are transparent and understood by customers.2

1. The regulation as proposed by the Council stipulates that “the assessment of agreements and commercial practices should inter alia take into account the respective market positions of those providers of internet access services, and of the providers of content, applications and services, that are involved.”  One of the proposed amendments suggested to remove this qualification and thus make the assessment of discriminatory practices the same regardless of whether the ISP in question would have market power or not. [↩]
2. Arguably, transparency and customer awareness may be a stronger concern.  Lack of consumer awareness has been a persistent issue with regard to the large gap between actual and advertised broadband speeds, and fears that broadband customers may be equally unaware of restrictions that their ISP imposes on traffic are perhaps justified. However, the underlying problem in this case would be lack of transparency resulting in lack of consumer awareness – and it would seem reasonable to try and address this problem rather than eliminating all scope for differentiation. [↩]