Not Neutrality: An end to meaningful net neutrality in Europe?

I started working at Factory, a campus for startups and tech companies in Berlin, roughly four months ago. Upon my arrival, we immediately received several alarming messages from our colleagues in the startup ecosystem about net neutrality laws in Europe. Things were not looking too bright. I was tasked with researching the matter and generating an understanding of what was at stake for the community. Little did I know that two months later I would be testifying alongside Allied for Startups at a hearing of the Board of European Regulators for Electronic Communications (BEREC) to fight for net neutrality on behalf of startups. I want to give you a brief understanding of what’s at stake here and how you can join the conversation to protect net neutrality in Europe. Though it is a technical topic, its impact on our ecosystem and the global digital economy is highly consequential.

Background

Until now, neutrality of the internet has been the great equalizer: it allows the smallest of startups to compete with global titans. Legislation recently passed by the European parliament places this global status quo in jeopardy. The law encompasses contradictory language that, if interpreted incorrectly, could conceivably allow fast lanes for commercial purposes, zero-rating, and throttling; all three are antithetical to true net neutrality. As a consequence, Europe could face an existential dilemma that would have cascading effects for decades to come.

So, what’s the problem?

Many in Europe appear painfully unaware of the imperative at play. In the euphoria following the abolishment of roaming fees across the continent, a more cynical policy emerged that ostensibly threatens the core of the European social democratic system. Without appropriate intervention, oligopolies could reign digitally supreme in a system whereby those with the most money can pay to prevent others from even competing in the game.

Now codified into law, the European Parliament and Council have passed legislation that manifestly legalizes the potential to segregate the internet. In all probability, Directive 2002/22/EC on Universal Service and Users’ Rights Relating to Electronic Communications Networks and Services (as the law is known) originated from a genuine attempt to enshrine real net neutrality into law. From the first reading, it appeared as if the EU parliament was prepared to fight for a strict interpretation of net neutrality, one which favored innovation and protected startups. Even now, many parts of the law aim to protect end-users’ rights and choices. For instance, recital 7 of the legislation indicates that “national regulatory and other competent authorities should be empowered to intervene against agreements or commercial practices which, by reason of their scale, lead to situations where end-users’ choice is materially reduced in practice.” This clearly shows the parliament’s intent to protect end-users and the applications that serve them.

However, schisms in the law portray a legislative body torn between acting in the best interests of its citizens while also trying to appease the demands of major telecoms or Internet Service Providers (ISPs) and their influential supporters. Some have voiced concerns of a “political quid pro quo” in which the European Parliament traded compromises on net neutrality in order to pass legislation abolishing roaming charges. Confounding the topics of net neutrality and roaming into one piece of legislation does not appear coincidental.

What’s at Stake?

The directive cleverly disguises fast lanes for commercial purposes as specialized services, throttling as traffic management, class/application-based discrimination as preventative maintenance and the unfair practice of zero-rating will be left to local regulatory authorities in each member state to decide.

Fast lanes are the product of creating a “second internet” with faster speeds and uninterrupted service. In paying premium fees for fast lanes, wealthy corporations could afford to pay for unabated, faster access to end-users, which would give them a distinct competitive edge over those applications/companies that cannot afford to pay. Zero-rating is the process of either paying for or striking a deal with an ISP to ensure that usage of one’s application does not count against (deduct from) an end-user’s monthly bandwidth cap. Finally, throttling is the process of the ISP speeding up or slowing down applications. Throttling is readily done under the pretext of “maintenance,” but the process is easily abused to favor certain applications by speeding them up and to handicap other applications by slowing them down.

The internet is not neutral when mega corporations can pay more to amplify their voices while drowning all other voices out. It is not neutral when ISPs can, in perpetuity, conveniently throttle applications that compete with their own under the guise of “traffic management and preventative maintenance.” The internet is not neutral when companies strike zero-rating deals with ISPs to ensure that using their application will not deduct from a user’s monthly bandwidth limits. In international trade law, zero-rating would be tantamount to the odious practice of dumping or predatory pricing, which is tactically employed to undermine prices, extinguish competition and serve as a barrier to entry for burgeoning competitors.

When considering several notable contradictory sections, the law creates gaping loopholes that could be used by ISPs to employ tactics that go against the spirit of the law to preserve the internet as a neutral domain and protect end-users’ choices and rights.

Timotheus Höttges, CEO of Deutsche Telekom, gave us insight into an ISP’s interpretation of the law when he said “If they [startups] want to bring services to market which require guaranteed good transmission quality, it is precisely these companies that need special services. By our reckoning, they would pay a couple of percent for this in the form of revenue-sharing…” In this quote, Mr. Höttges audaciously suggests that Deutsche Telekom and other ISPs are prepared to confiscate revenue from startups in exchange for “good [internet] transmission quality.” If a startup has yet to produce revenue, it’s no stretch to imagine that ISPs would demand equity in its place. This would give ISPs an inordinate amount of control over end-users’ choice with an added incentive to manipulate markets on account of their fiduciary shareholder status in startups (i.e. promote their startups over competitors). ISPs, instead of consumers, could effectively exert their power to determine which applications make it to market while also dictating the pathway that startups must take to get there.

Implications

Naturally, this would stifle startup innovation, which would lead to less competition, fewer choices, higher prices for end-users and lower job creation. Startups require significant latitude and dexterity in the early stages of development. Establishing an additional layer of stakeholders by incorporating ISPs into the decision-making process would decimate the startup model, which is predicated on a horizontal structure that allows for rapid decision making and constant adjustments. Furthermore, if a startup were obliged to engage in revenue sharing in order to access fast lanes with Deutsche Telekom, would they be required to engage in such negotiations with all ISPs globally in order to access end-users in each market? When would a startup of three people have the time or resources to undertake these negotiations? Many startups build a significant user-base as a prerequisite to acquiring funding from venture capitalists (VCs). In order to access these end-users, it appears as if ISPs would effectively require startups to engage in a worldwide tour of equity and revenue sharing negotiations. This is wholly unrealistic and renders the current startup model commercially unviable.

Historically, VCs have been reluctant to invest in startups that cannot easily bring their goods to market. Imagine a situation in which a small business owner needed to use a majority of their bank loans to pay for special, uninterrupted electricity or water programs. Imagine if SMEs had to use investor funding to pay excess fees in order to move their products to market on any public road? Naturally, investors invest with a sound understanding of the basic infrastructure required for a business to succeed. For startups, the internet is a basic utility required for survival.

The loopholes in the legislation place a heavy burden on the Body of European Regulators for Electronic Communications (BEREC) — the regulatory agency responsible for enforcing all laws concerning electronic communications in Europe — to effectively define and enforce net neutrality as the final arbiter. It should not be their role to define net neutrality. This was the responsibility of Europe’s representatives in the EU parliament and council. Nevertheless, the preservation of net neutrality in Europe now depends on BEREC’s interpretation of certain contradictory clauses and recitals in the law. Hopefully, the spirit and original intent of the legislation is preserved to protect end-users’ choice and all applications’ right to compete on equal ground.

Unfortunately, BEREC has a potential conflict of interest in its role as arbiter. Countries such as Germany, France, Belgium, and Austria own shares in their flagship telecommunications providers. These governments have a vested interest in keeping their investments profitable, which in turn gives telecom companies unweilding influence over policymakers. These companies have easy access to regulators and decision makers when it comes to the regulation of their industry. Startups do not boast such influence. So, the question is — are regulators prepared and able to make political sacrifices that might jeopardize their own government’s investments in telecoms?

We hope that the answer to this question is a resounding yes!

While ISPs and Telecoms may have money, access, and influence, the facts cannot be denied. Startups create more jobs than telecoms. Startups and other young companies are now responsible for 50 percent of all job creation in Europe, according to Andrus Ansip, EU Commissioner for the Digital Single Economy.

BEREC can close all loopholes and protect the internet by enforcing an interpretation of the law that aligns with the spirit of the text as espoused in recital 7 and clause 2 of the directive. Both sections emphasize protecting end-users’ choices and rights above all. Fast lanes, throttling and zero-rating impede user choice and thwart a user’s right to access all applications equally. Therefore, BEREC should implement a strict interpretation of the law, which places an outright ban on the creation of fast lanes or “specialized services” for any commercial purposes. Specialized services should only be used for non-commercial purposes such as national security, public health and safety and other matters deemed to be in the national interest. BEREC should rigorously monitor ISPs and penalize those that engage in throttling and class/application-based discrimination. Finally, BEREC should implore local regulators to ban the discriminatory practice of zero-rating in member states due to its anticompetitive proclivities and disposition to stifle innovation.

Fundamentally, even with an incongruous law already in place, there is still time to implement a regulatory enforcement regime that favors a strict definition of net neutrality and, consequently, innovation and user choice. It’s a simple question of interpretation. While this burden should not fall on BEREC’s shoulders, it unfortunately does. Startups and contemporary tech firms will lead Europe’s economy into a digitally global future. We need policies in place to help us achieve this goal. We need true and meaningful net neutrality.

CALL TO ACTION

BEREC will release a preliminary draft of the written guidelines in the next 4 to 5 months. We will then have an opportunity to review the draft guidelines to determine whether or not they comport with the spirit and ideals of true net neutrality. If the guidelines do not reflect our values and expectations, we will need sustained and concerted pushback from our entire community. In the meantime, you can also contact your national electronic telecommunications regulator to express your concerns. But let’s be clear — what’s at stake here is our ability to create, scale and compete freely. We cannot afford to lose.

BEREC — Website of BEREC (Local Representatives Can Be Found here)

Overview — European Parliament votes in favour of ‘two speed’ internet

Barbara van Schewick — Europe Is About to Adopt Bad Net Neutrality Rules

The U.S. Battle — How We Won Net Neutrality

Marietje Schaake — Dutch MEP friendly to our cause

Save the Internet — Europe — Additional Information