Computing Applications Viewpoints

The Network Neutrality Debate Hits Europe

Differences in telecommunications regulation between the U.S. and the European Union are a key factor in viewing the network neutrality discussion from a European perspective.
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Readers of this magazine will be familiar with the network neutrality debate currently occurring in the U.S. The February 2009 issue featured a Point/Counterpoint column by Barbara van Schewick and David Farber, respectively arguing in favor of and against legislative intervention to secure network neutrality (page 31). Many readers might have wondered whether the European Union has also been engulfed in the debate. The answer is yes, but as is often the case the EU and the U.S. are starting from different situations and working within different policy frameworks.

"Network neutrality" has become a slogan of sorts, which covers a more complex reality than either side of the U.S. debate is willing to admit. The key development that prompted the debate everywhere were statements by certain broadband Internet service providers that they wanted to move away from the "best-efforts" model currently prevailing. Instead of deploying best efforts to convey all the packets they handle to their destination (with delay, jitter, and so forth being distributed randomly), these ISPs would want to introduce differentiated quality of service (QoS) levels. Technically, ISPs would then need to inspect packets more intensively than they usually do in order to determine the QoS level with which to handle them.

In the EU as in the U.S., ISPs have two main reasons for desiring differentiated QoS. In the shorter term, it responds to perceived network management problems, in the wake of explosive Internet traffic growth with the rise of video-based applications, services, and content. For most ISPs today, a small fraction of their users (usually less than 10%) account for most of the use of their networks (usually around 80%). This imbalance is not reflected in the subscription rates, even though that small fraction of users generates network management problems that affect the quality of service provided to other users. Differentiated QoS—as a network management tool—would enable ISPs to correct some of that imbalance, since users (including application, service, and content providers) would then decide how much quality of service (priority) they want to purchase and their traffic would be treated accordingly. In economic terms, it is too early to tell whether such a development will increase welfare. In theory, tailoring QoS more closely to the preferences of each user is an improvement, but in practice the verdict will depend on the extent to which the users who opt for lower QoS offerings are properly compensated if—as is likely—they experience an inferior level of service.

The ISP landscape in Europe looks different than in the U.S. and is likely to remain so in the foreseeable future.

In the longer term, differentiated QoS can have much larger implications by affecting the balance of power between ISPs, their users, and content providers (including also service providers such as Google or application providers such as Skype). ISPs are under pressure to deliver ever faster connections to users and content providers, yet Internet access is becoming a commodity, with the price of subscriptions falling steadily. The trend can be reversed by turning the ISP network into a "platform," that is, offering specific QoS and performance levels to users and content providers alike, thereby making the ISP attractive to deal with ("the best video delivery," "the best gaming experience"), as opposed to just one of many alternatives on the market.

In addition, by positioning itself as a distinctive "platform," an ISP should be able to maintain, if not expand, its revenue stream; at a time when ISPs must carry out considerable investment in upgrading their networks (fixed and mobile alike), this could be a welcome evolution. Yet this would also imply a reshuffling of innovation patterns. So far the Internet has been very successfully driven through innovation "at the edge," outside of the networks (consider Google, Amazon, Skype, iTunes, and all the Web 2.0 providers). In the future, innovation could equally be coming from the ISPs on their platforms. It is not clear for now whether this will substitute for or complement innovation at the edge, that is, whether innovation at the edge will be reduced (because innovative upstarts would be shut out) or further spurred.

What is more, technically no one knows yet how such differentiated QoS offerings could be implemented across the various networks that typically make up the fabled Internet cloud. This brings me to mention some significant differences between the EU and the U.S. In the U.S., the provision of broadband Internet access is concentrated in a few hands, namely those of the remaining local exchange carriers providing ADSL (AT&T, Verizon, Qwest) and the large cable TV providers. The official FCC policy is to bank on competition between the relatively few providers of these infrastructure platforms (ADSL, cable, mobile). The Internet cloud would then give way to a limited number of single-firm platforms, each controlled by one of these providers, with two or more platforms being present at any given location in the U.S.

In the EU, the prospects for infrastructure competition are dimmer, since only a few areas (Benelux, parts of France, Germany, and the U.K.) are now served by competing broadband infrastructures (cable and ADSL). In most of the EU, it is thought that the rollout of competing broadband networks—effectively from scratch—cannot be achieved without some form of access to incumbent networks, at least in a starting phase. This means the ISP landscape in Europe looks different than in the U.S. and is likely to remain so in the foreseeable future: fewer competing infrastructures, but more market players, many of which rely on access to the incumbent’s network. Furthermore, that landscape is structured along national lines. In the end, it is difficult to conceive how differentiated QoS could be successfully introduced on single-firm platforms in the EU. More likely than not, significant coordination—through consortia/alliances, industrywide standardization or both—will be needed.

It is against that background that EU policymakers are considering whether to intervene. Their toolkit is different from that of their counterparts in the U.S. The EU regulatory framework for electronic communications (telecommunications) is formulated as a set of policy objectives, which national regulatory agencies implement with the help of instruments defined at the European level. Regulation must be based on sound economic analysis (as opposed to technology or history), and it is meant to be used only when it provides added value over the application of competition law. The regulatory framework is intended to be robust and sustainable without constant legislative intervention. In a sense, the discussion of network neutrality is a good test of these principles. So far, the dominant view is that the various issues raised by the introduction of differentiated QoS can largely be dealt with using existing legislation.

Indeed, many of the concrete difficulties experienced so far fall under EU competition law. For instance, in the U.S., the FCC inquired into the practices of Madison River—an ADSL provider that blocked access to voice over IP providers competing with its telephone service; and of Comcast—the large cable provider that blocked peer-to-peer traffic potentially competing with its cable TV service. In the EU, if an incumbent or any other ISP with enough market power to be found dominant engaged in a similar practice, it would most likely run afoul of Article 82 EC, which prohibits abuses of such dominant position (conduct that undermines competition by excluding competitors from the market).

Similarly, a dominant ISP would likely breach Article 82 EC if it attempted to create a walled garden or gated community whereby its own or affiliated content, applications, or services would be favored over those of competitors. If competition law were found not to have enough bite, then the regulatory regime specifically concerned with dominant operators (operators with significant market power or SMP) could be made applicable to the market for the transmission of content over the Internet. National regulatory agencies would then have the power to impose access and nondiscrimination obligations, in line with the EC regulatory framework.

The regulatory debate surrounding the introduction of differentiated QoS and network neutrality in Europe is not over by any means.

Furthermore, if all ISPs were to engage in blocking to such an extent that the Internet became "patchy" and its ability to deliver benefits to society was impaired, the current regulatory framework also offers a possibility to intervene to restore interconnectivity. Yet any intervention on this point would need to be very finely tuned: introducing differentiated QoS to improve network management implies that some users will choose not to purchase the top level of service, without them being in any way blocked from accessing what they desire.

In the end, even if the introduction of differentiated QoS entails some risks in addition to the benefits it could bring, it is too early to tell, and at this moment the case against differentiated QoS is not solid enough to warrant specific legislative intervention to impose network neutrality in the EU. The most important open issue for now is that subscribers know which QoS level they are getting from their ISP. Unfortunately, this is not always explained properly by ISPs.

As it turned out, the network neutrality debate hit Europe just as the EU lawmakers were conducting a general review of telecommunications regulation. The European Commission carried out the review and in 2007 submitted legislative proposals to the Council (made up of Member State governments) and the European Parliament for enactment. The Commission proposed to introduce a general principle that end users should be able to access and distribute any lawful content and use any lawful applications and/or services of their choice and to require ISPs to inform their users of any limitations imposed on that right. It also reserved for itself the right to develop minimum QoS requirements to be imposed on ISPs, if necessary.

In first reading, the European Parliament brought these proposals much further by framing the issue as a matter of fundamental rights and entrusting national regulatory agencies directly with the ability to introduce minimum QoS requirements. Yet the Member States, meeting in the Council, are much more prudent, and at the time this column was written, their view appears likely to prevail when the legislative process ends later in 2009. Contrary to the Commission and the Parliament, the Member States do not want at this time to enshrine any principle that users should have access to content, applications, and services of their choice. They would, however, require ISPs to inform users of traffic management policies and QoS levels. Finally, they would follow the Parliament in empowering national regulatory agencies to introduce minimum QoS requirements.

The regulatory debate surrounding the introduction of differentiated QoS and network neutrality in Europe is not over by any means. Legislative intervention for the time being is likely to be limited to strengthening transparency toward consumers, with the threat of minimal QoS requirements if the evolution took a turn for the worse. For the rest, the current regulatory framework will undoubtedly be used to deal with problems as they arise in specific cases. The next legislative review, probably in 2012, will then take stock of developments and lead to more definitive and informed legislative proposals if needed.

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