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What the draft regulations on net neutrality really mean

Mike Conradi, partner at DLA Piper, deciphers what the draft regulations on net neutrality really mean for you and your startup.

This month the Body of European Regulations on Electronic Communications (BEREC) published a disappointing set of draft regulations on net neutrality.

What they have failed to do is consider the essential purpose of any regulatory intervention, which fundamentally should protect consumers and facilitate competition.

Instead, they are proposing effectively to out-law “zero-rating” and in doing so, to reduce the range of options available for innovative services from your internet service providers (ISPs) and your own ability to market and promote new services.

What is net neutrality?

“Net neutrality” is the idea that any discrimination between different types of internet traffic should be outlawed in principle.

This is a controversial concept in itself. Advocates treat the idea as if it were some sort of human right – and they have a corresponding attitude towards to opponents, apparently seeing them at times almost as human rights abusers.

“Zero rating” means allowing a user to use data for certain services without any charge and without depleting their data bundle allowances.

Many net neutrality advocates say that zero-rating should be banned always and everywhere simply because it involves discrimination between traffic types.

First principles

The EU model of telecoms regulation is rightly held up as the gold standard of international best practice.

This is because regulators intervene in markets only where there is a market problem- ie only when one, or more, operators have market power and so have the ability, in the absence of regulation, to abuse their power and impede competition. If there is no market power issue there should be no intervention.

These draft new net neutrality rules seem to me to run entirely contrary to this basic principle.

As regards zero-rating they say that the practice is likely to “undermine the essence of the end-users’ rights.”

This seems to me just to be flat out wrong. In all the case studies described below zero-rating could, far from reducing choice, help a new entrant enter the market.

Opposite impact

The effects of banning zero-rating in principle can be seen very clearly in some examples of cases from early 2015.

In the Netherlands, Vodafone was fined for zero-rating the HBO-Go service, which competes with Netflix and in Slovenia telecoms operators have been prevented from zero-rating new-entrant competitors to Spotify and to Dropbox.

The result of banning zero-rating, then, has been to impede the ability of a new entrant content companies, whether for video, audio or cloud storage, to compete with established incumbents.

This is the opposite effect of what the regulation should be promoting.

A neutral future

There is in fact no reason to have any specific rules or guidelines on zero-rating at all.

EU regulators could simply apply the normal competition law principles – which would mean that if (and only if) the practice amounts in practice to an abuse of a dominant position it would be outlawed.

The test the regulator should be applying is the normal competition law test of abuse of a dominant position, not something new and nebulous around “undermining the essence of the end-users rights”.

Net neutrality rules were not divinely ordained are not an end in themselves.

There is nothing intrinsically wrong with discriminating between communications services – this is only problematic where it amounts to abuse of a dominant position.

In the US, where the whole concept of net neutrality arose, there may well be a case for rules of this nature because of the lack of competition between ISPs, but in Europe (where there is much more competition) this makes no sense and will only serve to continue to make it more difficult for new Over The Top (OTT) services, to become established.

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