Net neutrality is becoming a hot topic in the European Parliament. The Commission has come with a proposal, and the parliament will have its say about it. This process has only just started.
Last Thursday an expert who has prepared a study on net neutrality in the EU and the US visited the European Parliament’s committee for the internal market IMCO, to present the study.
You can download the study titled Network Neutrality: Challenges and responses in the EU and in the U.S. as a pdf (71 pages). I think it is well worth at least skimming through, for anybody interested in the net neutrality issue.
The study starts out by explaining why net neutrality is important:
1.2. The many faces of net neutrality
Departures from network neutrality (i.e. unreasonable discrimination) could raise a number of quite distinct potential issues of societal welfare, among them:
- Anticompetitive behaviour: Is there a risk that a network operator with significant market power (SMP) might project its market power into upstream or downstream market segments that would otherwise be competitive?
- Innovation: Might a network operator (especially a vertically integrated network operator that possesses some form of market power) act as a gatekeeper, inhibiting the ability of content providers or application service providers with which it competes from offering new, innovative products or services?
- Freedom of expression: Might a network operator interfere with the ability of its customers to express views with which the network operator disagrees?
- Consumer awareness: Do consumers understand the service that is being offered to them, and are they receiving the service that has been committed?
- Privacy: To the extent that a network operator treats some Internet traffic differently from other traffic, does this necessarily imply that the network operator is delving more deeply than it should into the user’s personal affairs (e.g. by means of Deep Packet Inspection [DPI])?
In Chapter 2, the study goes into some depth to explain that traffic prioritization on technical grounds is, and always has been, a necessary and useful established practice for how the Internet works.
I believe that this is a view that most people agree with, and that traffic prioritization on legitimate technical grounds is uncontroversial. It is when Internet service providers start prioritizing on commercial grounds that the problems appear.
Chapter 3 and 4 deal with the economics of traffic prioritization, and evolving business models that rely on quality differentiation. The study points out that quality differentiation is a normal and well understood practice that, in the absence of anticompetitive discrimination, in general benefits both producers and consumers.
But when a producer with market power in one market segment attempts to project that market power into upstream or downstream segments that would otherwise be competitive, that constitutes economic foreclosure. Foreclosure harms consumers, and imposes an overall socio-economic deadweight loss on society:
3.2. Economic foreclosure
A key concern regarding network neutrality has been with economic foreclosure. Foreclosure occurs when a firm that has market power in one segment attempts to project that market power into vertically related market segments where competition would otherwise lead to efficient outcomes.
[… For example:]
The end-user has, in the normal course of events, a free choice among Internet search engines such as Google, Yahoo, and Bing. Suppose, however, that the user’s broadband ISP were acquired by (to pick an example) Google, or otherwise were to form some affiliation with Google. Might the broadband ISP then favour Google, to the detriment of competitors (Yahoo and Bing in this example), and to the detriment of consumer choice?
This is the situation we want to avoid.
Chapter 5 focuses on differences between the US and the EU. In the US, there have been a number of high profile examples where lack of net neutrality caused problems. This is partly due to lack of competition in the US market for broadband access, and partly due to lack of regulation that would have been necessary to counteract this lack of competition.
In the EU, there have so far been only a few major examples of net neutrality conflicts: The blocking of Skype (voice over IP) by telephone companies who see it as competition against their own mobile phone services, and the blocking of Bittorrent traffic (file sharing) by some operators, are the two most prominent examples.
Chapter 6 contains the key findings and recommendations of the study:
In light of the current state of play, we think that it is important to avoid inappropriate, disproportionate, or premature action. Based on the findings noted in the previous section, our key recommendations are:
- Do not impose any further network neutrality obligations until there is sufficient experience with the obligations already imposed through the 2009 amendments to the regulatory framework to make a reasoned judgment about their effectiveness;
- Support both technical and policy research to enhance the effectiveness of the consumer transparency obligations, and to ensure that the minimum QoS obligations can be effectively imposed should they prove to be needed;
- Continue to study the aspects of network neutrality where complaints may have some basis, including (1) charges and conditions that mobile operators impose on providers of Voice over IP (VoIP), and (2) impairment of peer-to-peer traffic; and
- Reserve judgment on any further obligations until there is a clearer vision of what harms to societal and/or consumer welfare, if any, are visible once the 2009 provisions are fully implemented.
In its April 2011 Communication, the Commission noted that the 2009 amendments have not yet been transposed, and remarked that “…it is important to allow sufficient time for these provisions to be implemented and to see how they will operate in practice.” We concur. We think that imposition of significant further obligations at this time would be ill-advised.
My own summary of the report as a whole would be that it says that:
- Net neutrality is important and good,
- Lack of net neutrality may hurt both businesses, consumers, and society as a whole,
but so far
- This has been more of a problem in the US than in the EU,
- There have only been a few big EU cases where net neutrality has been the issue,
- We should keep a close eye on how the market develops,
- We should not introduce further regulation at this time.
To me, this general position makes a lot of sense, but I look forward to any comments.
Download the study Network Neutrality: Challenges and responses in the EU and in the U.S. and let me know what you think.