Latest Event Updates
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.
One could wonder what could be the real aim of Google in this area. By getting wholesale access from Hutchison, 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 unlikely to me, 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.
In light of the above, I believe that Google ‘s business scope in this area may be somewhere else.
Becoming an MVNO (and become a regulated mobile operator) could make sense only if the envisaged business is more sophisticated than providing mobile connectivity. Google could think to bundle its platform with connectivity in various forms, a business strategy which may however rise antitrust concerns due to the dominance position of Google in some markets. Google could eventually launch a mobile worldwide service based on 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.
Google could also decide to become a mere airtime reseller, i.e. offering to users the purchase of mobile connectivity everywhere and getting a commission fee therefrom, like with applications. However, the connectivity service would still be formally provided by the mobile operator selling the airtime. By doing so, 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.
To be clear, neither Google nor 3 UK commented on the matter. As regards an MVNO launch in the US, Google declared that it will be a “small scale” business.
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.
Today a Dutch court declared the national data retention legislation to be invalid. The decision is a foreseeable effect of the previous sentence of the Court of Justice of the European Union which on April 8, 2014 annulled the European Directive on data retention (Directive 2006/24/EC).
Following the annulment by the EU jurisdiction, European Member States are hardly starting to face the consequences of that. In facts, the European judgement did not make national data retention legislations (whether or not enacted as implementation of the annulled directive) automatically invalid. However, because of the principles laid down by the European court, most of such national legislations are at risks, because they impose data retention obligations in a too general and far-reaching way. According to the European Court, data retention obligation are compatible with EU law, namely with fundamental rights and privacy, as far as they are sufficiently selective and proportionated.
In the case of Netherlands, the government made a review of the national data retention legislation and concluded that no major modifications were needed and that in any case such legislation was necessary “for the investigation and prosecution of serious criminal offenses”. Only a few adjustments were made, which mainly tightened who had access to what data and under what circumstances. However, such adjustments have been just proposed and consulted, but have not yet entered into force. The current judgment therefore only related to the “original” law.
Remarkably, unlike the European Court, the Dutch judge did not declare the massive collection of data as such illegal. It seems that, according to the Dutch court, a limitation on the data that need to be retained would not make sense, given the purpose of the legislation, which is to fight and prevent serious crimes (§3.8. of the ruling). The court mainly focused on the safeguards around such as: where and how the data are stored? who and how can access the data for what kind of crimes (i.ee not only serious crimes)? here a Google translation of the relevant paragraph:
“In that respect it is noted that a limitation of the data to be saved to the data of suspected citizens is not conceivable in view of the purpose of the Wbt, i.e. the effective detection of serious crime. In case of a first offender it is not possible to distinguish in advance between suspicious and non-suspicious citizens. The need for providing assurances and guarantees regarding access to these data, however, is all the greater because it is a very large interference, so that should be put to that high standard.”
Also other European governments, for instance Denmark, UK and Sweden, reviewed their national legislations to be in line with the European judgment. To have a full picture see my previous post.
While the details of the case at stake still needs to be analyzed, it is clear that some European governments have underestimated the consequence of the annulment of the European directive. On the basis of this precedent, any individual can challenge national data retention rules on the basis that they do not comply with the criteria laid down by the European court. Whether or not such a legislation was enacted as implementation of the annulled directive, it is irrelevant.
Other important European governments, such as Italy for instance, are silent on the matter and they risk that related data retention legislation to be entirely declared invalid by a court, with major consequence on their entire investigation activities.
Today the European Parliament voted an important motion for resolution on the Annual Report on EU Competition Policy.
The report concerns, inter alia, the competitiveness situation in the European Telecom sector. The European Parliament reminds the importance of competition for investments, innovation and consumer welfares, and addressed the risks if excessive market concentration.
The position of the European assembly follows straight the declarations of Competition Commissioner Vestager who, during the Mobile Forum in Barcelona and in public interviews, made clear her intentions to stop the telecom consolidation process in the EU, as far as consumers interests may be affected. It is worth-noting that the Competition Directorate of the European Commission is currently carrying out deep investigation about mergers in Spain, Danmark and UK.
Remarkably, the European Parliament expressly doubts about the market data used by the European Commission to justify some of its past policy positions. This is of paramount importance. The past European Commission (namely the former Commissioner for the Digital Agenda, Dutch Neelie Kroes) has been accused to have taken initiatives without a sufficient assessment of the market and proper consultation with stake-holders (a proceeding is currently pending with the European Ombudsman with regard to the Connected Continent proposal). Doubts have been also emerging also with regard to the comparison between US and EU broadband market data, when it became clear that Europe is performing much better than US, at least as far as the interests of consumers are concerned.
Rather then commenting the wording of the draft at stake, it is much more interesting to look directly at the relevant statements of the resolution (§§47 to 50 copied below, I added some emphasis when needed):
47. Underlines that, in the next-generation broadband sector, the former monopolies have a staggering market share of over 80 %; recalls that effective competition is the best driver of efficient investment and provides maximum consumer benefit in terms of choice, price and quality; calls on the Commission, therefore, to enforce properly both ex post and ex ante competition rules in order to prevent excessive market concentration and abuse of dominance, as competitive pressure is key to ensuring that consumers can benefit the most from high-quality services at affordable prices;
48. Stresses that limiting competition is unlikely to lead to more broadband investment, even in remote areas, as full coverage of basic broadband services has been achieved in Europe through a regulatory framework ensuring access to dominant operators’ networks;
49. Believes that investment in next-generation broadband infrastructure is clearly core to achieving a digital economy and society, but that in order to maximise investments, telecoms policies should enable all players to make efficient investments by providing them with effective access to non-duplicable network assets and fit-for-purpose wholesale access products;
50. Calls on the Commission to base its decisions and policy proposals on a thorough and impartial analysis of correct, relevant and independent datasets; highlights, in particular, doubts about the correctness of data presented on the EU’s under-performance in high- speed broadband including speeds received by end-users, infrastructure investments and the financial state of the sector in a global comparison;
According to the Court of Justice of the European Union (decision of March 5, case C-479/13 and C-502/13 Commission v France and Commission v Luxembourg), European Members States cannot apply to electronic books a reduced VAT rate, whereas such reduction is applicable to physical books pursuant to Annex III of the VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax). This judgement will probably shake the debate amongst these who believe that the European institutions should contribute more to the digitalization of the European economy.
Digital or electronic books are immaterial goods which may include books supplied by download or web streaming from a website, so that they can be viewed on a computer, a smartphone, electronic book readers or other reading system. The European court rejected the idea that electronic books may be seen as substitutes of physical books (at least in order to benefit of the reduced VAT rate under the relevant rules). Fact is, electronic books are different from physical books because their sale basically consists in licensing rights, whereas a physical book is sold via the sale of its physical medium. Therefore, in order to treat them in the same way, at least from VAT point of view, one should modify the existing legislation, which reserves the VAT reduction only to physical books, while the same advantage is excluded for electronic services (the electronic books fall into the latter category).
As stated above, this judgement will probably disappoint many digital supporters, however the judges have just interpreted the European tax legislation as it stands at present. When the VAT directive was adopted in 2006 the European legislator considered sufficient to support culture and education through a specific regime for normal books, while the impact of electronic books was not conceivable yet. At least for the tax experts of the European Union.
The sentence of the European court has been adopted in the frame of infringements procedures launched by the European Commission against Luxembourg and France which, in fact, applied a reduced VAT rate to electronic books. Accordingly, since 1 January 2012, France has applied a VAT rate of 5.5% and Luxembourg a rate of 3% to the supply of electronic books.
If the European tax legislation will not be changed, then further litigations will arise, because other European Members States have chosen to apply to electronic books a reduced VAT rate, despite the European directives – namely Italy.
As stated above, the judgment delivered by the Court today does not prevent Member States from introducing a reduced rate of VAT for books on physical support, such as paper books.
The Council of the EU, which is currently lead by the Latvian presidency, finally stroke an agreement on the draft proposal about roaming and net-neutrality. A mandate has been given to the Latvians to start negotiations with the European Parliament and to find a final deal over a reform that, at beginning – when proposed by Commissioner Kroes in 2013 as the “Connected Continent” proposal – was much more ambitious.
Although there is a great optimism in Brussel, closing the deal will be less easy than expected. And consumers should not be too excited.
The net neutrality proposal
Unlike the recent the new position of the US administration, the EU proposal does not prohibit specialized services. This is probably due to the fact that, due the competition in the European BB market, the Council believes that nobody (an incumbent telco) will be able to abuse with specialized services. In addition, national regulators (such as Ofcom in UK, AGCOM in Italy ecc) will have to monitor in concrete cases whether the emergence of specialized services may effectively impair the availability of ordinary Internet (best effort) in the market. In other words, whether or not this proposal will protect or affect net neutrality, it will mostly depend on the competitive conditions of each national market and the attitude/willingness of the local regulator. This means that Berec and Commission may be required to intervene again.
The EU proposal does not solve drastically the zero rating issue. This matter was debated in the Council but, while there was a majority of Member States opposing to prohibit zero-rating, a number of countries, especially the Netherlands and Slovenia, pretended such practices to be addressed somehow. The reason for that is that only in these countries there are NN national legislations in force, and such rules prohibit price-discrimination. Recently, some Dutch and Slovenian operators have been fined for zero-rating practices. A compromise was found, at a end, with a generic wording:
2. Providers of internet access services and end-users may agree on commercial and technical conditions and characteristics of internet access services, such as price, volume and speed. Such agreements, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the right of end-users set out in paragraph 1 (NB: par. 1 refer to the right/freedom of end-users to surf freely in the Internet without coercion).
In other words, also for zero-rating practices the attitude/willingness of the national regulators to intervene will play a major role. The Council draft does not set a clear prohibition, however it enact some powers to intervene.
For the rest, the Council text does not contain surprises.
The roaming proposal
The reform of the roaming is very weak and bit misleading. Starting from June 2016 European citizens will be entitled to an amount of voice/Internet traffic abroad without roaming surcharges (the so-called “basic roaming allowance”: “BRA”): the extent of this BRA will be a matter of negotiations with the EP, however the Latvians already proposed very low thresholds (the BRA should be granted for just 5 days at year, for instance). The traffic exceeding the basic allowance will be subject to roaming surcharges, as always. This BRA mechanism seems addressing European citizen going abroad once a year, it doe snot reflect the fact that many people go abroad frequently for personal and business reasons.
The Council did not show intention to review the anticompetitive mechanism allowing big European mobile operators to impose the roaming surcharges. In other words, there has been a discussion about reviewing the level of wholesale roaming charges (i.e. the price that a mobile operator must pay to provide roaming services to its customers abroad), however nothing has been really achieved (the Commission should present a study by 2018: campa cavallo!). As a result, the biggest mobile operators will simply recover from domestic services the profits lost in the roaming, and the retail mobile price will tend to increase overall. Competing operators, such as small MNOs and MVNO, will be prevented to compete because of the high level of wholesale access prices.
In other words, the European non-traveling citizens will simply subsidize the traveling ones.
The Trilogue negotiations
The Latvians have now to negotiate with the European Parliament, which has already shown some disappointment for the deal closed by the Member States. The negotiation will probably look like a bazar negotiation. The low compromise closed by the Council will serve to avoid to grant too much to the European parliament, whose position in April was much more aggressive.
Depending of the outcome of the negotiation, the procedure may last until the end of the year. Being the codecision procedure applicable, the European Parliament will need a strong majority to block the proposal of the Council (within 3 months). In case this happens, and the Parliament succede in tabling further amendments, the Council has to take a decision (further 3 months). In case of disagreement, a new phase (conciliation, 6 weeks) will start.
The FCC, the US regulator for telecoms and Internet, will soon adopt a fundamental decision in the matter of telecom and Internet regulation: as anticipated by various sources, US broadband access will be soon classified as a telecommunication service (while it is currently classified as an information service) with a twofold consequence:
– FCC will be empowered to impose net neutrality rules to US broadband ISP, and intends to do so: fact is, FCC intends to prohibit blocking, throttling and paid prioritization of online services;
– FCC will be empowered to impose access remedies to broadband ISP such as pricing control, ULL and bitstream, in other words to open their network to alternative operators like it happens now in Europe (NB: chairman Wheeler has specified that this power will no be enforced for the time being).
It is clear that the FCC is playing with the American ISPs the stick and carrot game, where the stick consists in the new NN regulation, while the carrot is the guarantee not to apply access regulation to broadband access. US IPS are scared about the possibility to apply access regulation to their networks and have loudly claimed that they could stop fibers investments if FCC does so.
While the FCC decision is destined to provoke an intense debate in the US, it is interesting to see whether it could influence similar debates in the EU, or vice versa.
The EU is getting closer and closer to define a NN regulation. The Council is currently discussing a text which, after long months of debates, should be finalized by February 2015 so as to be submitted to the European Parliament and European Commission for the final negotiation and approval. In a previous post I remarked that the Council draft was too much telco-oriented and would have probably faced opposition or reserves by the European Parliament as well as by some directorates of the European Commission. Whatever the Council will finally agree, it is certain that the new US position will affect the balance of the European negotiations. The European Parliament will surely attack the paid prioritization proposed by the Council, on the basis that this practice is destined to be prohibited in US. Whatever the compromise will be, the Council will have to offer in return a more robust guarantee for best effort Internet. The Parliament will also feel stronger in advocating some symbolic amendments, such as an explicit reference to net neutrality and openness of the Internet. To sum up, the new FCC position on NN will surely help the European Parliament to defend its citizens-friendly approach.
Access regulation and competition
As stated above, the new classification of broadband in the US would theoretically permit an application of economic regulation to American ISPs, such as pricing control, ULL access and so on, although this possibility has been loudly excluded for the time being. It is therefore uncertain how this approach could impact on European policy, where access regulation is imposed in practice and not only in theory. The European Commission will start to revise the European framework in 2016 and there are strong pressures by historical incumbents (such as Orange, Telefonica and Deutsche Telekom) to lift regulation in order to boost investments (although the link between regulation and investments is controversial and challenged by many). In this respect, a paramount role will be played by the comparison of European and US data/figures relating to BB performances such as investments, speed, coverage, price, quality, consumer satisfaction and so on. In the past big US telcos such as Verizon and AT&T have loudly claimed that the US broadband market should be more successful than the Europea one, at least in terms of profits and network/fibers investments. Nevertheless, more recent data have radically challenged this assumption: various voices has shown that US consumers pay BB more expensive than in the EU, and the quality is not better. Also the debate about network investments has become more controversial, since it has been shown that with the Bush’s deregulation in the 2000 the percentage of revenue dedicated by US ISPs to investments has decreased. Only the profitability data resist for the time being: US ISP make more profit than European ones.
In light of the above, if the comparison of US/EU data will show that EU is performing better than US, despite the burden of internal fragmentation, it is possible that the EU access regulation approach will be endorsed by the US authorities, rather than vice-versa.