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How to Save the Internet 101: Net Neutrality & Competition Law

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About The Author

Matt Bogdan (Former EU & International Law Editor)

Matt graduated with an LLB (2:1) from Durham University in July 2014. Most recently, he has been assisting with research on comparative company law at the Durham Law School. Matt is primarily interested in the TMT sector, but has also been involved in matters of public international law through Durham United Nations Society.

Anyone actively enjoying their right to freedom of movement across Europe must have certainly welcomed the news of a ‘trilogue deal’ (between European Commission, European Parliament and the EU Council) to  abolish roaming charges across the EU by June 2017. And while this undoubtedly is an important step towards bolstering the EU’s Digital Single Market, though perhaps becoming somewhat irrelevant in a world where talking over the Internet is the everyday standard and where your average traveller’s first question at a hotel reception desk is ‘can I get the WiFi password please?’, it is nonetheless crucial for everyone to recognise that the roaming changes were merely a more popular, yet less noteworthy part of a larger legislative package.

What is more noteworthy is that the agreed trilogue package deal addresses issues concerning the regulation of the Internet and preservation of so-called ‘net neutrality’, a concept encompassing the view that all Internet service providers (ISPs; think Sky, Virgin Media etc.) and governments should treat all data on the Internet equally and not discriminate based on content, user, website or platform used. In my view, at least half of this idealistic definition should find purchase in our everyday lives. The other half, that is trying to force governments to respect net neutrality, will probably never amount to anything more than a futile exercise in argumentation and so will be skipped in this article. The ‘Great Firewall’ of China, recent UK’s attempts at setting up a ‘porn filter’ on an ISP-level or Russia’s heavily politicised Internet architecture are prime examples of how little sway can theoretical ideals have on political determinations.

The more realistic part of the definition involves maintaining network neutrality by regulating the conduct of ISPs, who are traditionally (but not necessarily officially) opposed to net neutrality since it prevents them from fully capitalising on their existing infrastructures. This article will open with an explanation of what exactly net neutrality stands for, why is it important and why we should be particularly attentive of any legislative changes concerning it. Next, the current state of regulatory protection for net neutrality in the European Union (EU) will be examined, particularly in relation to the corresponding debate settled this year in the US (at least for now). Finally, the question of what sort of legal framework is hypothetically best suited for ensuring net neutrality in Europe will be posed and comparisons shall be drawn between new regulations and established antitrust laws.

‘Fast and Ultrafast’ Or Rather ‘Slow and Fast?’

On its most basic level, net neutrality ensures that all content on the Internet is treated equally by all Internet Service Providers (ISPs), both in terms of accessibility and speed of access. Thus, once you pay your ISP for access to the Internet, all content should be readily available to you and all traffic should be treated equally, irrespectively of whether you are watching a movie stream, chatting on Skype or visiting a bunch of websites, be it the popular or the niche ones.

Key here is the distinction between what Christopher Marsden calls ‘positive’ and ‘negative’ net neutrality – ‘positive’ concerns allowing IPSs to provide higher quality service for a fee on a non-discriminatory basis, whereas ‘negative’ involves content discrimination (i.e. denying consumers access to certain content) and thus can prove more dangerous. Fortunately, except for instances where political pressure is exerted on ISPs (think Russia or China), we only have to concern ourselves with ‘positive’ net neutrality.

It goes without saying that currently there exists no perfect net neutrality on the Internet. Even last year, Netflix, an on-demand media streaming provider, has agreed to pay Comcast, a US broadband provider, for a ‘smoother’ streaming experience, and while such deals may become harder to arrange given the recent acceptance of the ‘Open Internet Order’ in the US, the future of net neutrality remains very much in question. In fact, allowing companies such as Netflix to purchase preferential treatment may to many seem like a reasonable solution given the provider’s popularity and the sheer amount of traffic it attracts, however there nonetheless exists a convincing rationale why abandoning net neutrality principles and allowing ISPs to cash in on various deals with content providers is a bad idea.

Without net neutrality at the heart of the Internet, Internet Service Providers would be free to offer varying levels of connectivity to content providers at varying price ranges, thereby rendering some content more readily accessible to consumers than other. Naturally, only the most affluent and established businesses would afford the ‘fastest connection’, which in turn would create insurmountable barriers to market entry for startups who can only afford the ‘standard connection’. Whether you believe in net neutrality or not, chances are, as a consumer you will always turn to the service that does not stutter or welcome you with the most dreaded ‘loading… please wait…’ screen, which without net neutrality would essentially mean an end to any smaller businesses trying to break through into markets that are heavily reliant on Internet access.

This naturally raises numerous competition-related concerns. A two/multi-tiered Internet system would greatly damage competition in Internet-based markets since nobody would be willing to wait for example for a video to load on a startup’s website when a smooth streaming experience is available only a click away. Further, the risk of abusive vertical integration, whereby a broadband provider creates and favours its own content-providing service, would become a real possibility. In fact, a hypothetical threat is already here in the form of Sky’s Now TV, an Internet television service. Had Sky been free to sell ‘preferential treatment’ to content providers as it wishes, then it would not take a rocket scientist to figure out how easily accessible Now TV would be in comparison to its competitors.

The argument on the ISPs’ side is that no harm will be done to competition as the ‘standard’ connections should still be ‘fast’ and allow start-ups to successfully enter relevant markets. Needless to say, common sense dictates that the discrepancy between ‘standard’ and ‘fast’ connection speeds is more likely to reflect a ‘loading… please wait’ and ‘press play to watch’ type of difference. Indeed, John Oliver in his Last Week Tonight episode on net neutrality has humorously, yet informatively, supported this assumption by showing how even in their negotiations with Netflix, Comcast (an American ISP) was exerting pressure on the media streaming provider by temporarily lowering its download speeds (i.e. resulting in poorer customer experience). Without net neutrality at Internet’s core, it is only reasonable to expect ISPs, who control our access to the Internet, to capitalise on their strategic position by allowing content providers to pay for having their content rendered more accessible than that of competitors. Unfortunately, this would not only affect those businesses that cannot afford to remain competitive, but also us, consumers, indirectly – when competition dies, we usually get less choice between services. Whether we (or the ISPs) like it or not, the business realities would push us into an Internet world where only the rich can become richer, even when, paradoxically, their own success stories are often attributed to a neutral Internet. Perhaps as a silver lining, at least in the EU the risk of ISP abuse would be somewhat mitigated by the fact that competition in the EU ISPs market is relatively healthy (see the Commission’s Digital Agenda Scoreboard from page 16 onwards) as compared to the US, where a few key cable companies dominate the market and thus the risk of abusive practices is greater. Admittedly though, the US may actually be a unique, ‘exception-that-proves-the-rule’ type of example here, since even the UK compares favourably in this regard.

All things considered, net neutrality is an essential component of a dynamically evolving Internet and is key in ensuring that the rapidly developing, Internet-reliant markets remain competitive with few barriers to market entry for new competitors. With that in mind, we now have to move to consider how the legislative architecture on net neutrality has been developing in the EU over the past few years.

The Undecidedly Neutral Europe

The brief history of net neutrality in Europe is one of intertwining highs and lows. First, as it usually is the case, there was darkness and your mobile phone carrier could throttle your Skype call to ‘encourage’ you to use other services for calling, such as, surprise surprise, your actual phone (for which you obviously have to pay per minute).

Then, in 2009/2010, the European Commission launched a consultation into net neutrality, which was followed three years later with a proposal by the former Commissioner for Competition as well as for Digital Agenda, Neeile Kroes, on the first net neutrality legislation. Unfortunately for net neutrality advocates, the 2013 proposals were rather unsatisfactory: not only did they not offer sufficient protection to startup businesses, but they quite explicitly allowed for a two-tiered system where ISPs could charge content providers for carrying their traffic.

Only 2014 saw a true change of attitude towards net neutrality – the European Parliament passed a number of amendments to the legal framework on net neutrality, which firmly set the key definitions involved and explicitly banned ISPs from discriminating between traffic on the Internet. Despite not avoiding controversy, the move represented a considerable step towards greater protection for equality on the Internet.

A notable point of confusion involved the notion of ‘specialised services’, which, according to the amendments, were exempt from the general ban on discriminatory handling of Internet traffic. Thus, where an ISP provided ‘specialised services’, it could treat such traffic favourably and generally provide superior quality of service. With the potential for abuse and creation of a two-tiered Internet plainly in sight, the amendments have simultaneously ensured that ‘specialised services’ are defined strictly so as to prevent discrimination on the Internet. Accordingly, ‘specialised services’ could not be confused with regular Internet content and could only be provided when such special requirements for higher quality of service exist. A good example for when specialised services should be allowed is that of online medical treatments.

Another major drawback of the 2014 amendments involves the issues of enforcement. The amendment which proposed a clear enforcement structure was rejected by the Parliament, leaving the newly approved legal framework without actual teeth to enforce the laws.

For anyone unacquainted with the EU’s legislative process, it is quite a complex affair. Since it alone merits an entire article, for our purposes it is important only to be aware that to pass an EU law, an agreement between the European Commission, the European Parliament and the EU Council is required. This rather complex graph as well as this simplified one both illustrate the processes involved. As it is the case with all EU law, the proposed framework on net neutrality had to also go through the same process since the European Parliament’s vote alone cannot make law. And this is where we arrive at the current state of affairs.

In June/July 2015, the last meeting of the ‘trilogue’ (negotiations between European Commission, European Parliament and the EU Council) took place and a final version of the net neutrality laws were agreed upon. Quite to the dismay of most net neutrality activists, the new deal features a rather relaxed definition of ‘specialised services’, which states that ISPs can provide higher quality services to select content providers as long as it does not amount to paid prioritisation. The problem here is that of a legal loophole – even if the ‘specialised service’ is not paid for, this creates a situation where ISPs can choose which content provider is ‘special’ and which is not quite. Coupled with vague, bordering on non-existent enforcement mechanisms, this presents the ISPs with a plethora of options. One can now only wonder how ‘special’ Now TV is in the eyes of Sky broadband…

Notably, one more issue from the previous proposals – the ‘zero rating’ issue – remains unresolved after the trilogue negotiations. ‘Zero rating’ allows for certain applications to be included in a package that can be used by consumers free of charge. While clearly beneficial to consumers from a financial standpoint, enabling ‘zero rating’ may ultimately limit consumer choice as all those content providers who cannot afford to put their applications on the ‘zero rating’ package will find themselves at a severe disadvantage.

Finally, again, the trilogue deal fails to implement any comprehensive methods of enforcement of the regulations and prescribes only vague definitions of possible penalties for lack of compliance. Thus, with all the controversy surrounding the new net neutrality regulations, and the on-going dispute between ISPs, content providers and net neutrality activists, is it perhaps worth considering whether another legal framework that is already in existence – competition law – could potentially be better suited, or at least support, the new regulations in protecting Internet-based markets and the welfare of consumers.

Saving the Internet – A Joint Effort?

In brief, competition law consists of legal rules intended to protect the process of competition in order to maximise consumer welfare and achieve economic efficiency. At the heart of the European Union’s (EU’s) competition law system lie Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), which restrict an array of anti-competitive practices, including agreements disrupting the competitive process and abuses of an undertaking’s dominant position in the market. Since the EU competition law applies across Europe, it also applies to all Internet-based market and accordingly restricts any abusive practices on the side of both ISPs and content providers.

EU competition law is a well-established legal framework enforced by the European Commission’s Directorate-General for Competition, whose enforcement activity in Europe has been growing year on year. The penalties resulting from public enforcement proceedings are among the highest in the world and therefore have a realistic deterrent effect. Further, the recently broadened mechanisms for private enforcement of competition law, which I have already commented on in my previous KCTL article on the new EU Damages Directive, create an even higher risk of punishment for infringing companies. Owing to its scope of application, competition law, as opposed to the new regulations, does not have to focus only on ISPs’ conduct – for example in vertical integration cases, both the content provider and the ISP may come under scrutiny. Contrary to what seems to be the case with the new regulations, competition law features well-developed principles and definitions that do not allow for legislative loopholes such as the one found in the trilogue deal concerning the provision of ‘specialised services’. Needless to say, any legal ambiguity in such a rapidly developing area as the Internet may only deter economic growth and investment, which will ultimately harm the consumers’ welfare.

Unfortunately, while competition law certainly presents a more reliable regulatory solution than the new legislation on net neutrality, it will inevitably lack the direct relevance of the latter. Competition law is predominantly focused on economic concepts and thus is ill-suited for protecting social concepts such as the principle of free-speech (in negative net neutrality cases). Additionally, while the competition enforcement penalties will certainly be more influential than whatever the new regulations may prescribe, they tend to focus on particular actors participating in the infringing act and not the industry as a whole, and therefore have a narrower effect than the new regulations (assuming a sensible enforcement mechanism is included in those).

All in all, it is apparent that in the current state of affairs, neither the new regulations on net neutrality, nor the competition law framework can alone offer sufficient protection for Internet-reliant market players. The solution therefore seems to be quite a simple one – keep a vigilant eye on the Internet-based markets with competition law, whilst carefully developing new regulations on net neutrality. Interestingly, across the Pond this approach appears to be problematic because it necessitates a clash between the two enforcers of the separate regimes – the Federal Communications Commission (net neutrality regulations) and the U.S. Department of Justice (competition law). Fortunately, for us in Europe this problem is less likely to occur – the centralised powers of the European Commission mean that it could be involved in enforcing both legal frameworks at the same time.

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Tagged: Commercial Law, Competition, European Union, Technology

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