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Posted in Policy & Regulation, Telecoms & Broadband Winston Maxwell

European Parliament votes to strengthen net neutrality

The European Parliament adopted on April 3, 2014 a series of amendments to the European Commission’s proposed “Connected Continent” regulation.  Among the most controversial amendments are those strengthening net neutrality.  The legislative process is far from over. It is unlikely that the European Parliament’s amendments will survive “as is” in the final regulation.  Nevertheless, the European Parliament’s vote establishes a political reference point against which future legislative debates on net neutrality will be measured.

The European Commission’s original proposal established the principle that Internet users should be able to access legal content, services and applications of their choice, and that ISPs may not discriminate except for reasonable network management.  The Commission’s proposal excluded specialized services from net neutrality rules.  The European Parliament’s amendments go further.  First, the amendments limit what can be considered as specialized services.  The European Parliament’s amendments would limit specialized services to those “optimized for specific content, applications or services provided over logically distinct capacity, relying on strict admission control, offering functionality requiring enhanced quality from end to end, and that is not marketed or usable as a substitute for Internet access services.”  Moreover, ISPs would be able to offer specialized services only if network capacity is sufficient to provide them in addition to Internet access services, without a material decrease in quality for the Internet access services.  The intent of the European Parliament is to ensure that specialized services cannot be used to provide improved quality for “normal” over-the-top services such as video streaming.

The European Parliament has also narrowed the concept of reasonable network management.  First, the European Parliament deleted the word “reasonable” from “reasonable network management,” thereby making network management a more objective standard.  Second, the European Parliament’s definition of network management is basically limited to technical measures necessary to deal with network security and temporary congestion.  The European Parliament has excluded any notion that ISPs may take action to limit access to illegal content.  The only exception to this would be when the ISP must obey a court order.  The European Parliament also deleted the provision that would allow ISPs to block transmission of unsolicited communications at the request of end users.  These amendments reflect the European Parliament’s hostility to the proposed ACTA treaty and other proposals that would allow Internet intermediaries to take measures to limit access to illegal content.  Under the European Parliament’s amendments, even the current French law relating to child pornography sites would be illegal.  It is likely that the member states will push back on this provision during the legislative debates.

The European Parliament inserted in the draft regulation a definition of net neutrality: “the principle according to which all Internet traffic is treated equally, without discrimination, restriction or interference, independently of its sender, recipient, type, content, device, service or application.”  Previously, this definition was included in the recitals of the Commission’s text.

The European Parliament left almost unchanged the Commission’s provision stating that Internet access providers shall not block, slow down, degrade or otherwise discriminate against specific content, except for network management.  The European Parliament simply narrowed the scope of network management.

Both the European Parliament and the Commission’s texts allow ISPs to provide contractually agreed data caps and download speeds in connection with retail Internet access services.

The European Parliament’s vote signifies that the concept of ISP non-discrimination has obtained considerable political momentum, and is unlikely to disappear in any future regulation adopted by the European Union.  The non-discrimination principle was traditionally linked to concepts of market power under existing EU regulations.  The approach that is emerging under the proposed regulation abandons this philosophy in favor of an approach that makes non-discrimination an inseparable part of Internet access.  The reason why non-discrimination is important appears to be not so much linked to concerns of abuse of market power, but instead the harm to the Internet ecosystem that would result from discrimination.

Some of the European Parliament’s amendments impose technically detailed requirements in connection with specialized services and network management.  Laws that are overly detailed quickly become obsolete.  Some of the detailed provisions suggested by the European Parliament may therefore become difficult for regulators and courts to apply given the speed of technological change.  Finally, it is unclear how the proposed regulation and the European Parliament’s amendments would affect commercial negotiations for exchange of Internet traffic.  Internet access providers currently negotiate transit and peering agreements with upstream Internet backbone providers.  Some content delivery networks and large content providers negotiate direct peering agreements with last mile ISPs.  These negotiations occasionally result in demands for payment on the part of last mile ISPs, based in particular on traffic imbalances.  In his March 20, 2014 blog, Netflix’s CEO Reed Hastings criticized these payment arrangements and challenged the notion that traffic imbalances create costs justifying payment to last-mile ISPs.  The upstream negotiations for exchange of Internet traffic raise complex problems related to market power, but also raise the fundamental question of who is providing what service to whom.  Last mile ISPs tend to take the position that they are providing a service to content providers by allowing their content to reach end users.  Content providers take the position that by bringing content closer to the last mile ISPs networks, they are providing a service to the ISP and its customers, allowing ISPs to save transit costs.  The debate remains open, and is not clear how the European proposals will change the parameters of the debate.

The next step in the legislative process involves the Council of Ministers of the European Union adopting a common position on the European Commission’s proposal.  Meanwhile, European Parliamentary elections will occur in May 2014, and a new European Commission will be appointed in the fall. The debate on the “Connected Continent” regulation could therefore extend well into 2015.

Winston Maxwell and French economist Nicolas Curien recently wrote an article (in French) examining the Verizon v. FCC case through the eyes of Europeans