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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. 

What the Digital Single Market proposal really means in practice

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After months of leaks and unofficial drafts, on May 6, 2015 the European Commission finally adopted the Digital Single Market (“DSM”) Strategy: a document of paramount importance for the digital developments of the markets and societies of the EU Members States which will keep busy lots of people in Brussels for the next 5 years. Expectations and the ambitions are great, no doubt. However, since – for a matter of life – there is frequently some distance between official declarations, one one side, and concrete actions, one the other, one would wonder what and when something concrete will realistically happen. The DSM strategy of the European Commission aims at creating a single digital market in the EU without internal frontiers and segmentations. For example, it is envisaged to abolish artificial barriers (eg. by prohibiting geoblocking tools); to harmonize relevant national regulations (eg. in the matter of consumers protection and spectrum allocation ): to encourage operators to spread in and invest everywhere in the EU (eg. by rolling out broadband and high-speed networks); to regulate activities which are very relevant for digital rights and businesses but completely escaped regulation until now (eg. online platforms such as search engines, social networks and e-commerce). A list of 16 areas of actions has been tabled in order to achieve these objectives, covering various areas including copyright, electronic commerce, consumers protection, telecom regulation ecc. It is a strategic document: the priorities indicated by the Commission will be followed by the competent commissioners for specific actions. However, apart from the strong political endorsement, the destiny of the single actions is to time unpredictable. The concerned directorates general of the European Commission (mainly DG Connect, but not only) will have to carry out analyses and studies, launch public consultations, interact with stakeholders and table relevant proposals. The specific proposals may be legislative or non legislative: in the former case (most of the cases, I believe) the European Commission will have to involve European Parliament and the Council in the legislative process. This means that the entire procedure (from public consultation up to the final approval) may take 3 year or more. It’s a long way for each item then. While the need to achieve a digital single market is shared by everybody within the Commission, one should be aware that views amongst competent commissioners may be contrasting as to the concrete initiatives to be taken and the details thereof. In fact, the decision making process within the European Commission provides that there must be a majority of commissioners to approve decision, irrespective of the commissioner having competence for that. In addition, the shared competences between vice-presidents and commissioners, introduced by the new Junker Commission, will increase the likelihood of disagreements and internal conflicts. To make few examples, in the area of telecom regulation, the position of DG COMP (headed by Vestager, Denmark) appears concerned about the need to preserve effective competition within the EU, while DG Connect (leaded by Oettinger, Germany) is much more relaxed and willing to deregulate as much as possible. In the area of copyright, contrasts may emerge between Vestager and Ansip (the Vicepresident for Digital Single Market, Estonian) on one side, and Oettinger on the other, because the formers are much more convinced that the current copyright framework needs to be modernized and legacy positions must be specifically addressed: the first clear area of disagreement seems to be geo-blocking, with Oettinger more inclined to justify this instrument in some cases on the basis of consideration of culture and linguistical differentiations. Disagreements are also visible in the areas of how to tackle piracy and illegal content in the Internet, whether and to which extent a review of the current directives (Directive 2004/48 on IPR enforcement, Directive 2001/29 on copyright and Directive 2000/31 on electronic commerce) will be necessary, or whether less-intrusive initiatives will be sufficient. Also there VP Ansip seems to be more clearly in favor of a modernization of the entire copyright system rather than just focussing on enforcement, while the actual position of Oettinger is still debated. Oettinger is also reported to be very militant against large online platforms such as Google, while other commissioners may be more cautious as far as new regulations will impact also over European emerging platforms and start-ups. Considering all the above potential disagreements between commissioners, a pivotal role will be carried out by the president Junker, his cabinet and the Secretariat General, in view to find compromises. One should also consider the connection with the pending STM (Single Telecom Market). The proposal launched by Kroes in September 2013 is now been dealt by the Council and the Parliament, and a final approval may occur at the end of 2015. The STM regulation has been narrowed to just roaming and net neutrality, two areas which are however fundamental for the establishment of a single digital market. Therefore, the eyes of the Commission will continue to closely follow this dossier. However, the (unlikely) collapse or delay of the STM will not block the DSM, it will just cause some delay and difficulties to the DSM initiatives relating to telecom regulation. You can find the explanatory PR of the Commission here. And the strategy here.

Europe: no continent for small and agile operators?

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While the 6th of May – the day when the European Commission will deliver its well-expected “Digital Single Market” Strategy – is approaching, there is a considerable traffic jam of leaked documents anticipating the draft that will be finally and formally adopted.

Remarkably, one of the previous versions of the incoming communication explicitly referred to the contribution of “small an agile operators” to the achievement of the Single Digital Market. Surprisingly, this passage is no longer present in the current version, which has been sent within the Commission’s offices for a short internal consultation.

The previous draft was the following (pag.8):

„[…] Our overall goal is to keep our markets competitive while offering legal certainty to market players with a set of clear rules. An effective market structure would combine companies present in many or all Member States with smaller, more agile operators. […]”

Instead, the latest draft only includes following aspects (pag. 7):

[…] The Commission will present proposals in 2016 for an ambitious overhaul of the telecoms regulatory framework focusing on […] (ii) delivering the conditions for a true single market by tackling regulatory fragmentation to allow economies of scale for efficient network operators and service providers, […] (iv) incentivising investment in high speed broadband networks (including a review of broadband obligations in the context of the Universal Service Directive) and (v) an effective regulatory institutional framework. […]

Thus, small and agile operators are not relevant any longer. One should ask whether the Commission really wants to put all the eggs in the basket of big, rigid and inflexible operators

In the reality, the discrepancies between of the two drafts reveal the difficulties that the Commission shall overcome in order to find a well-balanced draft. The Commission has been strongly lobbied by these who would like to sacrifice competition in order to favor (potential) investments, and the other who believe that competition is a prerequisite for the investments themselves. The current draft does not seem unbalanced, in the sense that it reflects the different degrees of achievement of competition and broadband roll-out throughout Europe and call for adequate and coherent intervention. This said, keeping as reference to small and agile operators would have been a great signal for the European industry, since small operators and SME are a big part of it. By contrast, this opportunity seems to have been missed for the time being.

Will Google ever become a (virtual) mobile operator?

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Latest news reported that Google is negotiation an agreement with Hutchison Whampoa permitting to the US company to launch a mobile service worldwide charging the same for calls, texts and mobile data regardless of the customer’s location. This seems to be a disruptive entry of the OTT industry into the exhausting discussions about the abolition of roaming surcharges. More recently, Google announced a wider mobile strategy named Project Fi, aiming at providing mobile at a connectivity in more than 100 countries int he world. Commissioner Oettinger, some one who cannot be seen a Google’s friend, welcomed the initiative claiming that the move of Google may be seen as an incentive to close rapidly the discussion about the end of roaming.

One could wonder what could be the real aim of Google in this area. By getting wholesale access from Hutchison (or from any other mobile operator), Google may become an MVNO (mobile virtual operator) and start to operate like Virgin Mobile in UK, Postemobile in Italy, Numericable in France, Telenet in Belgium ecc. However, this scenario seems not realistic per se, because of a few simple reasons:

– the MVNO business is regulated exactly as a telecom business, and I wonder whether Google may be really willing to become part of this complex regulatory environment. Better to remain in the OTT world instead;

profitability and margins in the mobile sector are decreasing in general. A MVNO must be very efficient to get a positive result because – in the absence of mobile access regulation – the cost of the wholesale mobile agreement is unilaterally decided by the mobile telco (Hutchison in the Google’s case) providing access;

– the roaming business is going to decline in any case, in the EU and abroad, because of a regulatory and economic trend worldwide, although at different speeds (you can still make some good money in some part of the world, but how long?). Therefore, today in 2015 it is too late to enter this market. Roaming tariffs still exists just to separate national markets and avoid cross-border competition, while the absolute margins are becoming negligible for the overall business of a mobile operator. MVNO can make still an interesting business if they are efficient, however such margins are likely much lower than margins of online  advertising.

Thus, Google’s objective in this area may be somewhere else. More likely, the move of Mountain View can be seen as the irresistible rise of OTT services over connectivity, with the latter becoming a simple commodity with a value destined to decrease over time.

In fact, operating as an MVNO (and thus becoming a regulated player) could make sense only if the envisaged business is more sophisticated than providing mobile connectivity. Google could think to bundle its platform and services with connectivity in various forms, in order to reflect the market trend whereby search and video are migrating from fixed to mobile. This strategy could be reinforced by Zero-rating tariffs: in other words, Google mobile users would have a preferential price to access service supplied or simply hosted by Google. Net neutrality supporters wouldn’t like, however.

This overall business strategy may however rise antitrust concerns due to the dominance position of Google in some markets.

A way for Google to avoid telecom regulation, and maybe to minimize antitrust concerns, would be to operate as mere airtime reseller, i.e. offering to users a package of mobile data connectivity everywhere and getting a commission fee from the mobile operator. Since the connectivity service would still be formally provided by the mobile operator selling the airtime, Google would not become an MVNO, and it would escape telecom regulation. That kind of business may be combined with the commercialization of Free-sim mobile devices, as Apple is also considering to do it.

Internet tax rejected in Belgium

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A Belgian court rejected the claim of Sabam, the local collecting society, arguing that Internet Access Providers (ISPs) should pay a kind of compensation because of the potential exchange of pirated content occurring over their networks. In fact, Sabam requested Belgacom, Telenet and VOO, the main Belgian ISPs, to pay an amount equal to 3,4% of each broadband subscription.

The claim of Sabam was based on the assumption that ISPs should be liable for illicit behaviors committed by their users, including piracy of copyrighted works. However, the Belgian court has demolished this argument by reminding that pursuant to the “mere conduit” principle established by art. 12 of the Electronic Commerce Directive (Directive 2000/31/EC), providers of Internet access cannot be considered liable for the activities carried out by Internet users such as exchanging mail, files, communications and so on. The mere conduit principle is a milestone of the electronic commerce framework, in the absence of which ISPs should be obliged to check any communications occurring in their Internet to avoid liability (which is impossible, due to the size of Internet communication and the risk to affect fundamental rights of individuals).

The rejection of Sabam’s claim by the Belgian court is not a surprise, because the mere conduit principle has been clearly confirmed at European level by the legislator and also by the Court of Justice of the European Union in various cases. Accidentally, the most important European jurisprudence consists in decisions rejecting other claims by Sabam in the matter of network filtering (Sabam/Scarlet decision of 24 November 2011) and hosting filtering (Sabam/Netlog decision of 16 February 2012).

Now Sabam will decide whether to escalate the legal case via an appeal or to try to submit an interpretative question again to the CJEU. The latter case seems the real chance for Sabam, because the strategy of the collecting society may be to provoke a judgement at European level to reverse a legal framework which, until now, defends robustly the mere conduit principle. However, it is for the Belgian courts to decide whether to not to disturb again the European judges.

The move of Sabam is therefore part of a wider strategy of right holders aiming at reversing the mere conduit principle in any way. Such attempts are also visible in current debates in Brussels where there are insisting pressures by some part of the industry to open and revise the Electronic Commerce Directive. The European Commission is currently working on the Single Digital Market objective (a communication is expected by May 6, 2015) and many legislative initiatives may be contemplated therein. Although there are speculations that also a proposal of revision of the Electronic Commerce Directive may be part of it, it is however unlikely that the Commission may seriously consider to challenge the mere conduit principle for access providers, since such rule appears fundamental for the proper functioning of the Internet industry in its whole (not just for the online content) and it also constitute a guarantee for the fundamental rights of individuals, who do not want their communications to be intercepted, scanned or filtered in any way.