Some years ago I was reading one of those very thought provoking articles in the end of year bumper edition of the Economist. The gist of the article was that you could compare societies along different dimensions and depending on the dimension you chose could get very different groupings to those we are familiar with. By way of example, when GDP is used as the dimension you end up with the developed / developing world classification, and when political freedom is the dimension the US and Europe appear together as contrasted against, say, China and Saudi Arabia. So far, so familiar. One dimension that the article then considered was that of religious observance – when that dimension was used the godless Europeans become grouped with the Chinese, whilst the US and Middle East (along that dimension) had more in common than is generally thought.
That article came to mind when I started thinking about the contrasting debates about net neutrality going on in Brussels and DC. The term ‘net neutrality’, which means different things to different groups, has taken on an almost religious character in the United States. There for some time major content providers and consumer groups have been concerned that Internet Service Providers (ISPs) might be motivated to discriminate technically and/or financially against content that is not their own. There have been a number of US cases which led to the FCC seeking to prevent what it regarded as discriminatory network practices, but the US Courts have ruled that the FCC has acted beyond its powers and apparently cast doubt on the legal basis for its previous attempts at rule-making in this area.
FCC Open Internet Rules
Yesterday, in a 3-2 split (along party lines) decision the FCC adopted the Preserving the Open Internet Report and Order, which in the words of two of the Commissioners was either:
‘Now, for the first time, we’ll have enforceable, high-level rules of the road to preserve Internet freedom and openness. … a framework that will increase certainty for businesses, investors, and entrepreneurs. … I believe our action today will foster an ongoing cycle of massive investment, innovation and consumer demand both at the edge and in the core of our broadband networks.’ – Chairman Genachowski; or
‘Not only is today the winter solstice, the darkest day of the year, but it marks one of the darkest days in recent FCC history. … Using these new rules as a weapon, politically favored companies will be able to pressure three political appointees to regulate their rivals to gain competitive advantages. Litigation will supplant innovation. Instead of investing in tomorrow’s technologies, precious capital will be diverted to pay lawyers’ fees. The era of Internet regulatory arbitrage has dawned.’ – Commissioner McDowell.
There are clearly deeply held differences between stakeholders in the US, so I decided to try and unpick the detail of the rules myself. My understanding of the rules (taken from the FCC papers) is:
1. The rules only apply to broadband internet access services –‘A mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.’
2. The rules require disclosure and transparency of network management practices – ‘A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.’
3. Fixed broadband providers may not block access to content, applications, services or devices, nor engage in unreasonable discrimination subject to reasonable traffic management – ‘A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.…shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.’
4. Mobile broadband providers may not block access to web-sites or applications competing with their own voice or video telephony services subject to reasonable traffic management – ‘A person engaged in the provision of mobile broadband Internet access service, insofar as such person is so engaged, shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider’s voice or video telephony services, subject to reasonable network management.’
5. Reasonable network management is defined so unclearly that it will keep lawyers in business for years. ‘A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. Legitimate network management purposes include: ensuring network security and integrity, including by addressing traffic that is harmful to the network; addressing traffic that is unwanted by users (including by premise operators), such as by providing services or capabilities consistent with a user’s choices regarding parental controls or security capabilities; and by reducing or mitigating the effects of congestion on the network.’
Commentators’ reactions have been as mixed as the Commissioners’ themselves and it seems to me that the adoption of these rules will only kick-start challenges as the market players continue to lobby for outcomes favourable to themselves. Some press comment has suggested that the differential treatment of mobile broadband (as compared to fixed) is due to the openness of the Android platform, which on its face (although the underlying papers are not yet available) seems a relatively weak justification.
European Open Internet Consultation
The debate in the Europe, by contrast, is much less heated and regulators are concerned to ensure that any controversy similar to the US is dealt with in a considered way and that the means for dealing with any detriments to consumers and to competition are readily available to the regulators. Accordingly, both Ofcom in the UK and the European Commission, on behalf of the EU, issued discussion and consultation documents in the summer seeking the views of operators, content owners and consumers. On 9 November, the European Commission published a report on their consultation, which whilst not setting out legislative proposals summarised the responses. Contrasting those responses with the FCC’s rules published yesterday, the major differences would appear to be:
1. There is consensus that the current European legislative framework is capable of dealing with any issues and so no new legislation will be proposed. However, as in the US, there is no consensus on whether problems exist or will occur.
2. Traffic management is necessary and essential. However, in addition to the concerns identified in the US, the European Data Protection Supervisor expressed privacy concerns over the use of particular traffic management techniques such as deep packet inspection.
3. Rules should be applied consistently across fixed and mobile networks. This may become a major difference between the US and European approach. In contrast to the US where different services are regulated under different parts of the underlying legislation it is a cornerstone of EU telecoms law that the regulators should be technology neutral so any attempt to distinguish in the way the FCC has done is arguably not open to European regulator, even were they so minded.
In its summer consultation, Ofcom identified discrimination and consumer transparency as being key issues. The European Commission’s consultation addressed those points, but also expressed a more contextual concern, around preserving an open environment which encourages innovation in applications, content and services. It is also keen to protect and preserve freedom of expression, media pluralism and cultural diversity on the Internet.
Both Ofcom and the European Commission regard competition and choice of different platforms and different pricing models as the optimum means of fostering an open approach to the Internet and thus avoiding net neutrality difficulties. A tension that has nevertheless emerged, and which is central to the debate, is whether and how revenues from the ‘cake’, of creative and information content, demand for which is increasing voraciously, should be divided up between those in the value chain so as to benefit not just the content providers but also its distributors, the network owners and ISPs. On this aspect, the Commission acknowledges the incentive for the network owners to seek to increase their share of this cake, ‘not least as a means of financing future investment in their networks’.
Ofcom’s document highlights as a concern that network operators may block or de-prioritise traffic from content providers who do not pay enough for the traffic costs they believe that the content providers create. Ofcom acknowledges the polarised views of the stakeholders, with network operators and ISPs on the one side traditionally opposed to the net neutrality principle and, on the other side, content and Internet applications vehemently in favour of it.
In relation to discrimination, Ofcom is concerned with ‘traffic management’ which it says is, in itself, neither good nor bad. It recognises that traffic management (essentially methods adopted by network operators and ISPs to control the bandwidth available to users during periods of network congestion, to prioritise types of traffic, to assign a particular quality of service for the transmission of different content (i.e. ‘managed services’), and even to block or degrade traffic in some instances) can have benefits for consumers: for example in relation to protection of minors and avoiding congestion problems. At the same time it could restrict their access to content and services or make such access subject to discriminatory forms of charging. However, without traffic management, bandwidth can become congested at peak times or over networks with constrained capacity (e.g. mobile), so that services are necessarily degraded.
Ofcom summarises the issue with traffic management as being that network operators may block or downgrade traffic from content providers who they believe are not contributing enough to pay for the consequential traffic costs. Ofcom acknowledges that it needs to consider how it might make use of its regulatory powers to address any adverse effects of traffic management on consumers as well as content providers. Ofcom’s initial view is that in order for regulatory concerns to be triggered, an ISP which undertakes traffic management would need to have some degree of market power and that such power would need to be substantial in order for exclusionary behaviour to lead to consumer harm. Ofcom regards it as premature to discuss whether these concepts would best fit into ex ante regulation of SMP under the Communications Act or ex post regulation of dominance under the Competition Act. Ofcom also regards it as premature to seek to control the prices of network operators and ISPs, given the lack of concrete evidence of excessive pricing and of future pricing models.
As regards transparency of consumer information, Ofcom notes that consumers are becoming aware of restrictions on their use of broadband services. Although within Ofcom’s existing Code of Practice on broadband speeds there is a requirement to provide information on communication providers (e.g. concerning fair usage, traffic management and traffic shaping), Ofcom is concerned about the lack of detail on this in some cases, consumer confusion around technical terms and the lack of detectability of traffic management mechanisms. Although not mentioned specifically, to this list one might reasonably add the communication of alerts to consumers in real time on the application of traffic management techniques. Ofcom concludes, however, that it is unclear how far improved transparency would alleviate all concerns about traffic management and that it would want to review the efficacy of any new approach.
It will be interesting to see what impact the FCC ruling has on European thinking and whether any of the FCC’s concepts will cross the Atlantic.