Latest Event Updates
As well all know, on Tuesday October 27 the European Parliament, meeting in plenary session, will likely approve the new net neutrality provisions which are part of the Single Telecom Market (“STM”) regulation. Civil society and industry are however protesting because the reform, despite some commendable principles, will de facto legitimate zero-rating practices, i.e. a commercial behaviors allowing telcos to discriminate Internet services and so affecting the free choice of users. Even Tim Berners-Lee launched an alert about the dangers of the proposed reform, while an accurate critical analysis have been dome by Barbara Van Schewick.
Because of the above, a Save-the-Internet campaign has been launched in order to support amendments to block that part of the reform. It is to be expected that some groups in the EP will support the amendments, especially the Greens, GUE, as well as some MEPs of the EFDD and the ENF groups. Several Dutch MEPs should also support the amendments (the Netherlands, notably, was the sole country together Slovenia to prohibit zero-rating practices). It seems that approximately half of the ALDE group is likely support them. The “Save-the-internet” campaign asking MEPs to support the amendments seems to be particularly strong in Germany, Belgium and Austria. However, I understood that the EPP, ECR and a huge majority of the S&D group will vote against and support the net neutrality provision including the zero-rating issue.
Because of the noise created by this debate, the press office of European Parliament issued a misleading communication pretending that it is not the Parliament, rather the national regulators, who will take a decision on zero-rating:
“Zero rating is a commercial practice of some internet access providers, especially mobile operators, to not measure the data volume of particular applications or services when calculating their customers’ data usage. This means that these websites or services are effectively provided for free to customers, to the detriment of all other websites or services. Parliament intends to allow national regulators, overseeing the implementation of the draft regulation, to decide whether zero rating will be applied in their country or not.”
This is completely false and misleading! So far national regulators had various instruments to block zero-rating practices, including antitrust, fair trade and consumers protection rules. In Slovenia and Netherlands they even had a net neutrality legislation ad hoc. By contrast, after the approval of the STM regulation, that power of national regulators will be materially weakened because of the ambiguous wording of article 3 of the European regulation vis-à-vis zero-rating practices:
- 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 enduser’s or provider’s location or the location, origin or destination of the information, content, application or service, via their internet access service.This paragraph is without prejudice to Union law, or national law that complies with Union law, related to the lawfulness of the content, applications or services.
- Agreements between providers of internet access services and end users on commercial and technical conditions and the characteristics of internet access services such as price, data volumes or speed, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the rights of end users laid down in paragraph 1“.
The above provisions must be read together with recital 7 (a recital, not a binding provision!) of the same regulation:
“In order to exercise their rights to access and distribute information and content and to use and provide applications and services of their choice, endusers should be free to agree with providers of internet access services on tariffs for specific data volumes and speeds of the internet access service. Such agreements, as well as any commercial practices of providers of internet access services, should not limit the exercise of those rights and thus circumvent provisions of this Regulation safeguarding open internet access.
National regulatory and other competent authorities should be empowered to intervene against agreements or commercial practices which, by reason of their scale, lead to situations where endusers’ choice is materially reduced in practice. To this end, 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. National regulatory and other competent authorities should be required, as part of their monitoring and enforcement function, to intervene when agreements or commercial practices would result in the undermining of the essence of the end users’ rights”.
In other words, while it is clear that agreements about data and speed are legitimate and may be used for zero-rating practices and other discriminations based on the price of Internet connectivity, it is absolutely unclear if and to what extent national regulators can intervene in order to prohibit such discriminations. The Dutsch and Slovenian legislations were quite clear to this respect, since they prohibit ISPs, sic et simpliciter, to differentiate the price of the Internet connectivity on the basis of the Internet services running over it. However, such legislations will need to be repealed (as it was declared by respective governments when voting against the STM).
The European Commission published 3 studies in the area of broadband performance revealing very interesting data about how different degrees of competition may influence this market. The data comparison between EU and US is remarkable.
I took the liberty to extract some selected conclusion concerning the comparison between the EU and US market, as well the performance of new entrants vs incumbent operators:
The actual download speeds attained in Europe for any given technology (in particular cable) were considerably higher than those measured in the USA:
– xDSL services averaged 8.27Mbps in Europe and 7.67Mbps in the US
– Cable services averaged 66.57Mbps in Europe and 25.48Mbps in the US
– FTTx services averaged 53.09Mbps in Europe and 41.35Mbps in the US
The least expensive offers per country (in the EU) are, in around 80% of cases, provided by new entrants which, however, are generally not available to all customers, because they have lower coverage than the incumbents.
When taking a closer look at the countries (in the EU) where a new entrant offer is the least expensive one, the incumbent’s offer with the lowest price is on average between around 20% and 35% more expensive than the least expensive offer overall, and the relative difference is the highest for Standalone offer.
The EU28 is less expensive than the US for broadband above 12Mbps. For 30-100 and 100+ Mbps, trends are very similar for all types of offers – the EU28 average of least expensive offers is in all cases substantially lower than the least expensive offer prices in Canada and the USA:
– For the 30-100 Mbps range, prices in the EU28 are between 4 and 14% higher than in Japan and between 25 and 54% more expensive compared to South Korea. They are however between 36 and 51% cheaper than in Canada and between 21 and 38% cheaper than in the USA.
– For 100+ Mbps, the difference with Japan and South Korea is larger (minimally 33% and up to 74%). On the contrary, EU28 prices are between 23 and 43% cheaper than in Canada and between 13 and 34% cheaper than in the USA.
The Court of Justice of the European Union (CJEU) declared invalid the so-called Safe Harbor decision of April 26, 2000 of the European Commission which allowed US platforms and OTTs such as Facebook, Amazon, Google and others to transfer and gather in the United States personal data of European citizens (Case C-362/14 Maximillian Schrems vs Data Protection Commissioner). The text of the judgment can be found here.
The judgment of the EU Court will have various fundamental consequences on the business of the US OTTs in Europe. In particular, the transfer and treatment of personal data of European citizens into US risk to become permanently uncertain and unfit for a proper online business based on profiling and online ads. My first thoughts on this:
- a new Safe Harbor decision will not solve the problems. The CJEU confirmed that national supervisory authorities remain competent to examine whether the transfer of individuals data to third countries complies with the requirements requested by the directive on data protection (Directive 95/46). This will make it for a very different business environment for US based platforms and OTTs in the EU; as a matter of fact, such companies from now on will be running the risk of having individuals challenging the way their data are processed in the US. Additionally, since most of US OTTs are based in Ireland, the Irish data protection authority will have to manage an enormous, unexpected, and maybe uncalled for, power over the entire US online business;
- in any case, it would be difficult to reach and enforce a new Safe Harbor decision. The CJEU clearly stated that the current way the US process personal data is not acceptable, because there are no guarantees as, nor limitations, to the potential interference by US investigation authorities, in particular as to security and anti-terrorism reasons. However, in a joint declaration, Vice-President Timmermans and Commissioner Jourová optimistically declared that “we will continue this work towards a renewed and safe framework for the transfer of personal data across the Atlantic“;
- therefore, it seems that the only solution will be for US OTTs to store data in the EU, rather than in the US, if they want to continue to carry out business in the EU. This means they will have to create new and separate data processing centers in the US and the EU respectively. It will be a kind of structural separation for personal data;
- for some OTTs this forced structural separation of personal data will be a disaster, since their business, based of profiling for advertising and marketing, will become much less interesting if data could not be compared and profiled all together.
- to overcome this issue, an enormous political effort should be done between US and EU. In particular the US should accept to discuss, and comply with, the data protection standards as indicated by the European Court. However, this is very unlikely to happen in the short term.
In the short term, US OTTs will continue to carry on their business, since the transfer of data to third countries may happen (art. 26 of the Data Protection Directive) also via other alternative means, such as with the consent of interested parties, the application of the so-called Binding Corporate Rules or the use of standard contractual clauses. However, such instruments do not constitute a viable, long-term solution in the present circumstances, since the judgement clearly applies, as far as mass surveillance is concerned, to any alternative transfer methods. In other words, the CJEU has not argued only under the Safe Harbor decision, but has based the judgement on fundamental rights that apply no matter which transfer methods are used.
Zero-rating practices to become norm in Europe, according to (quasi-final) net neutrality regulation
Today the Council formally approved the Roaming and Net Neutrality provisions of the TSM (Telecom Single Market) Regulation under the new name “Regulation 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 and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union”.
The text agreed by the Council needs now to be ratified by the European Parliament: on 12 October the ITRE (Industry) Committee will vote recommending the European parliament plenary (scheduled for 27-28 October) to approve the Council position. Unless extraordinary circumstances occur, the new regulation should enter into force in late November 2015.
It is remarkable that the Council’s position at first reading was adopted without discussion at a meeting of the Competitiveness Council. However, there were rumours that Netherlands and Slovenia, the only EU countries which already have a national NN legislation in force, may be voting against. At the end, they were not able to oppose the deal, instead they made statements expressing concerns for the impact of the new rules on their NN national legislations. Netherlandas believes that they will be forced to repeal their net-neutrality rules banning zero-rating practices, i.e. price discrimination.
Zero-rating practices are in fact allowed by the new European regulation. As a consequence of that, an ISP could charge customers with different connectivity prices depending on the Internet services (website, music, video) which are accessed to, thus materially influencing the free choice of the users. The new European regulation empowers the national authority to surveil about anticompetitive practices, however such rules are too vague to be a deterrent, and this is the reason why the Dutch are so worried.
The position of the European Parliament has been ambiguous on this point. The assembly has been doing a big battle about net neutrality but, in my opinion, they understood too late the zero-rating dilemma, because at beginning it was considered too technical (despite the fact that various people, including the undersigned, have been flagging the danger since the beginning). The Parliament became fully aware of the problem after the first reading in April 2014, but it was too late then. This delay in fully understanding such an important issue may have a serious weight for the future of the European Internet industry.
However, some members of the European assembly could still rise the issue at the plenary session, asking this problem to be amended accordingly. They would need a strong support for that. It already happened in 2009, when the European Parliament refused to ratify the reform of the 2009 Electronic Framework Package because it was missing a clear provision about Internet as a fundamental right. In that case, as it would be now, the Council was very angry with the Parliament which was accused not to be able to respect inter-institutional deals.
It is till too early to assess how European telcos will react to this unexpected freedom to discriminate Internet prices. In markets where competition is vigorous, they will be probably hesitate, because users may migrate to more friendly ISPs. But in markets tending towards narrow oligopolies (mobile and ultrabroadband markets in particular), the problem may rise soon.
Today’s news, that Telenor and TeliaSonera are going to abandon the planned merge of their Danish assets, will play a pivotal role in the incoming years. The nordic companies have decided to make a step back following the conditions imposed by the European Commission (and specifically by DG COMP offices lead by commissioner Vestager) in order to clear the transaction. Vestager, a Danish politician (what a case!) commented the move of the companies in the following way: “EU merger control has to make sure that company tie-ups do not lead to reduced innovation, higher prices or reduced choice for consumers and do not restrict competition in the internal market”. In other words, Vestager has confirmed the view that the mergers amongst the Danish mobile operators (the number 2 end 3 in terms of market shares) would have been detrimental for the Danish consumers. The remedies required to clear the transaction, i.e. MVNO access and the sale of spectrum to a new mobile operator, were necessary to compensate the lost of a player in the market. In the Commission’s view, un der the circumstances of the Danish mobile market is not possible to reduce the number of mobile operators from 4 to 3.
In the last years the European telecom market has been characterized by a sort of merger-mania, with many telcos advocating for the need to consolidate in national markets and reduce the number pf players, in order to save costs and increase margins. The most notable operations happened in the mobile sectors in Austria, Germany and Ireland, where the number of (network) mobile operators was reduced from 4 to 3. Since most of the European mobile national markets have 4 operators, a debate has started whether the reduction from 4 to 3 would be detrimental for competition or there might be remedies able to compensate the lost of an operator. The European Commission, lead by the precedessor of Vestager, Joachim Almunia, cleared the Austria, German and Irish transactions by imposing remedies that, however, have now proven to be ineffective: on one side, the obligation to offer spectrum did not work and no new (fourth) mobile operator entered the market; on the other side, the remedies in favor of MVNOS did not work properly and competition by these operators was quite weak. As a result, prices have been increasing in the Austrian mobile market and similar effects are expected now also from Germany and Ireland.
Vestager has probably considered these market effects and, taking into account the views of DG COMP offices (more than Almunia did), she started a more strict approach, aiming at making sure that the mobile consolidation do not affect competition. However, this could mean, in practice, to definitively stop the mobile consolidation in Europe within domestic borders, because it is clear that the planned mergers for now (in Italy and UK) have not other reasons than increasing margin and profits in domestic markets, while the potential benefits for investments and innovation are absolutely theoretical. In other words, the chances for H3G to merge in Italy with Wind and with Telefonica (O2) in UK are today definitely weaker.
The main argument played by European telcos for the mobile consolidation is about investments: reducing the number of players at domestic level, or increasing their size via a merger, would be necessary to invest in infrastructures, in light of the migration to 4G or further technologies. DG COMP has been always skeptical about this, however. Fact is, until now the presence of 4 mobile operators in the market has never affected investments, as the historical data show. Because of the strong infrastructure competition and the rapid growth of mobiles services, investing rapidly was necessary for any player. However, what changed with respect to the past was the profitability: with the end of high profits with sms and voice (due to the gradual phasing out of mobile termination tariffs) a s well as international roaming surcharges, the mobile sector profits have been going down, although they remain higher than in most of other markets. The problem is, however, when you are used for years to have champagne and caviar, you do not accept to be back to a normal menu. This is the problem of European mobile telcos.
Vestager’s mission could bother other European commissioners and stakeholders which are claiming consolidation in order to create bigger telecom players in the EU, to invest more and compete at global level. However, what Vestager is doing makes absolutely sense: to achieve these targets (creating big players and bla bla) European companies should consolidate at cross-border level, rather than merging domestic assets. Cross-border consolidation would be the only way to become really big and support the creation of a Single Digital Market in the EU. Nevertheless, European telcos continue to play consolidation more as a rhetoric argument and they prefer to be big in (small) domestic market rather than playing at global level by merging with operators of various countries. This is the reason why Vestager is right.
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
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.