Comments for Can Obama’s initiative ensure that ‘internet fast lanes’ do not develop to the detriment of standard access?

The article tackles the problem of net neutrality after Obama urged the Federal Communication Commission (FCC) to review its classification of “broadband networks as utility”. Therefore, the argument is split in three. Firstly, I will point out the latest developments in the area of ‘net neutrality’ in the US. Secondly, I will confront some diverging opinions on the topic. Finally, I will explain in a few words the consequences of regulations on net neutrality in Europe.

The FCC just approved the 26th February the new rules concerning the “net neutrality”, nearly two year after President Obama’s request to reclassify broadband networks as utility. In this way, the FCC wants to discourage ISPs’ anti-competitive behaviour by forbidding network owners as Comcast or Time Warner Cable to block or restrict Internet traffic and concluding favourable contracts with rich tech companies. Net neutrality implies that Internet should be viewed as a public good and providing equal opportunity.

Let’s now consider the different opinion about the last decisions concerning this sensitive topic. President Obama sees the FCC’s decision as a victory and even commented the approval via Twitter: : “Today’s FCC decision will protect innovation and create a level playing field for the next generation of entrepreneurs.” Nevertheless, most people considerer the battle for net neutrality far from over. First, the telecom companies will fight the FCC’s decision in court and depending on the next president’s party, the new rules will be applied. Secondly, one might wonder about FCC agency’s practical action plan to ensure net neutrality in the long run. The examples in the past in China and Iran have shown that a state ruled Internet generates many problems as the creation of an underground network. Finally, network owners still need to manage the data flows and some policymakers tend to think that this market is already enough regulated to prevent anti-competitive behaviour and worry more about negative spill overs on the expansion of the Internet.

Finally, the recent concerns about net neutrality compelled the European Commission to propose a Regulation in 2013 and only some Member States adopted laws concerning net neutrality, as the Netherlands. Nevertheless, even there laws still need to be reviewed, as KPN and Vodafone were fined by the Dutch ACM, they consider that the guidelines should be more clarified.

To conclude, the sensitive issue of net neutrality will continue to expand and authorities will be compelled to find solutions tailored to the needs of the people.

Sources
http://www.gsara.tv/neutralite/?p=67
http://www.lemonde.fr/pixels/article/2015/02/26/etape-decisive-pour-la-neutralite-du-net-aux-etats-unis_4583490_4408996.html#EURSVqbEiu2V46zS.99
https://mspbwatcharchive.files.wordpress.com/2013/10/access-to-broadband-networks-the-net-neutrality-debate-july-22-2013.pdf
http://money.cnn.com/2015/02/26/technology/fcc-rules-net-neutrality/

Thursday 26th February 2014, 3 months after Barack Obama statement on ‘’keeping the internet open and free’’ (1), the Federal Communications Commission (FCC) took a step further in favor of the net neutrality by voting and passing new rules which goal are to ensure that ISP’s treat all legal content equally despite heavy lobbying (on both sides: in favor or against the rules). (2)

However, while the net neutrality rules passed in the US, the situation in Europe is heading in a different direction. Indeed, despite the fact that a decision has been taken less than one year ago in order to ensure the net neutrality in Europe by heavily restricting specialized services (3), a recent proposal has been put forward and is favoring measures that will threaten the idea of Internet as a common good: corporations will be able to get faster internet services, providing that they pay an higher price to the telecom firms. (4) (5)

The economists against net neutrality say that network operators are merely aiming for a better management in order to avoid congestion and the end effect will be better for everyone. They cite as an example Netflix, which is for now essentially ‘’free-riding’’, despite the fact that it takes a really large part of the traffic. It is thus logical, in their opinion, that they pay a larger fee for it. (6)
The telecom companies also need to recoup their loss with the roaming charges which are dropping in Europe, the ’’free services’’ offered by facebook or google which would permit the user to access to their website without the need of data service (7). So this would be a new way for them to charge data. In the contrary, with a higher net neutrality, telecom companies would have to find another means of charging and thus, they may be rising the bills for every end-user.

In the other hands, activists for internet freedom have a different take on the issue, in their opinion, the internet should be free and for everyone. Internet access should be equal for everyone. It should not be the case where the law of the stronger, the one who will pay more will reign in detriment to the others. It will diminish competition because the big companies will have an unfair advantage against the others. Finally, it will also stifle innovation because investment will only be made on the most on profitable fast lane. (8)

In conclusion, the opinions are divided on this issue but seeing the seemingly opposite approach in the US and in Europe regarding the problem, we can observe that there is no easy answer.

(1) https://www.youtube.com/watch?v=uKcjQPVwfDk
(2) http://www.usatoday.com/story/money/2015/02/26/fcc-approves-net-neutrality-rules/24053057/
(3) http://www.bbc.com/news/technology-26865869
(4) http://www.commdiginews.com/featured/europe-endangers-net-neutrality-37646/
(5) http://arstechnica.com/business/2015/03/europe-reverses-course-on-net-neutrality-legislation/
(6) http://www.economist.com/news/business/21641257-rules-road-internet-will-always-be-work-progress-be-continued
(7) http://www.digitaltrends.com/mobile/google-free-zone-placeholder/
(8) http://www.theguardian.com/technology/2015/feb/26/net-neutrality-activists-landmark-victory-fcc

When I first heard about net neutrality, I tried to understand the concept but didn’t quite managed to. This article allowed me to dig deeper into this subject. If, like me, you understand better a concept when it is discussed with a little bit of humour, I suggest you this video: https://www.youtube.com/watch?v=fpbOEoRrHyU, as well as all Last Week Tonight with John Oliver’s channel.

Here is a short timeline for those who aren’t up to date (1):
On April 23, 2014: the FCC was considering a new law to let the IPS’s offer 2 different lanes according to what the companies can afford: a fast lane for big companies and their big budget and a slower one for the others. The FCC stands for Federal Communications Commission, which is separated from the government. This caused a lot of manifestations among the USA, not only from citizens and small companies but also from big companies like Google, Facebook, etc.

The vote happened on May 15th with a 3-2 result, allowing IPS’s to charge their customers for better services (2). People were all pointing at the president of FCC, Tom Wheeler, who is a former cable and telecoms lobbyist.

On November 10th, Obama declared that he supported the idea of net neutrality. After that, Wheeler was willing to find a compromise.

On February, 26th 2015: FCC voted to reclassify the status of IPS’s to “common carriers” (which means that they are private companies providing a public service) and Net Neutrality rules with a 3-2 vote. The document was called “Protecting and promoting the open Internet” (3). The FCC stated that “these new rules are guided by three principles: America’s broadband networks must be fast, fair and open — principles shared by the overwhelming majority of the nearly 4 million commenters who participated in the FCC’s Open Internet proceeding.”

That is thus great news for the USA, but what is the situation around the world?
Closer to our country, The Netherlands have actually adopted a rule about net neutrality in 2012, after Chile in 2010. Dutchmen agree to say they didn’t even feel a change in their Internet services after this law (4).

Finally, to bring a small answer to the question that is the title of this article: Can Obama’s initiative ensures that ‘internet fast lanes’ do not develop to the detriment of standard access? Let’s say that having Obama strongly asking you to reconsider your point of view is something really powerful, as Tom Wheeler begins to doubt himself the day after that event.

(1) http://www.digitaltrends.com/web/net-neutrality-timeline/
(2) http://www.zone-numerique.com/neutralite-du-net-la-fcc-a-change-les-regles-mais-les-acteurs-du-web-resistent.html
(3) http://www.journaldugeek.com/2015/03/03/victoire-neutralite-du-net-consacree-etats-unis/
(4) http://www.nytimes.com/2015/02/27/business/dutch-offer-preview-of-net-neutrality.html?_r=0

Differences between US and EU

There is a difference in regulatory factors that we need to take into account when discussing the debate about net neutrality. In America there are much more regulations concerning net neutrality then in the EU. A possible reason why they have more regulations in America could be because there are not a large bunch of broadband service providers. This means that American consumers do not have much choice when it comes to choosing a provider but also that these providers could easily abuse their position of power.

Concerning these regulations, America’s telecommunications law classifies services into two different categories. Either the service is considered as an information service, either the service is classified under telecommunication services. The first one is not subjected to a lot of regulations while the last one is subjected to a lot of rules.

Recently, Obama wants the FCC to re-classify the entire network in America. He does not want any service using slow lanes because thy will not pay a fee. Obama does not want any kind of gatekeeping that could potentially undermine the level playing field essential to the Internet’s growth. Said otherwise he ops for no paid prioritization or any other kind of restriction of that genre.

On the contrary in the EU there are much less rules on net neutrality and different member state have different rules about it. This implies more freedom for operators. However the EU is strengthening its regulation about net neutrality. Form March 2014 forwards, Internet service providers are not allowed to slow down competitors’ services. On the contrary member states fight for a prioritization of services that want fast access for their consumers.

What do the different parties think?

According to experts, traffic discrimination is a good thing because it will improve the quality of the services within limited bandwidth. However they also acknowledge that this discrimination could work anti-competitive as well (when an operator accelerates traffic of a particular provider at the expense of the others, which will get slower traffic).

Activist groups do also have their opinion about the debate of net-neutrality.
The reason why they opt for net neutrality is two folded. Firstly they strongly belief that net-neutrality is the way to go because any intervention would be incompatible with the spirit of freedom of information. Secondly, they belief that some big internet-service providers would abuse their market power to fight against others (that are in competition with their products). Thirdly, they argue that these large internet-service providers could charge fast access.

Service and content providers (such as Skype and the BBC), who opt for a more robust regulation because they argue that traffic is sometimes slowed down by operators. Contrary to the service and content providers, the operators (such as AT&T and Orange and telecom providers) opt for some kind of regulation of traffic management. They are against net neutrality because they claim they should be allowed to charge firms for faster access and in this regard pay off their investment in these large, content generating networks.

Net neutrality beneficial?

According to literature welfare effects of net-neutrality regulation tend to be ambiguous. The impact on welfare of a zero price rule depends on the relative magnitude of the network externalities and the impact of a non-discrimination rule on welfare depends on various parameters such as the nature of completion. Therefore literature concludes that the case of strict net-neutrality regulation is not compelling. However, Net neutrality has been proven to be beneficial for countries that adopted it, for example the Netherlands. The net neutrality increased prices a little (because of less competitive pressure inherent to the concept of net neutrality) but also faster streaming was observed.

The Internet is one of the major innovations our world has seen and has revolutionized entire industries. It has grown quite fast in absence of major regulation, consequence of its youth. But now the Internet has matured and become so important that both the European Union and the United states felt the need to legislate and regulate it. This involves one of its most basic aspects, its neutrality. The neutrality of the internet consists in keeping it open to everyone and do not discriminate based on its use, as long as it is lawful, obviously, or the origin of the user, a competitor for example. On this matter, we can find at least two conflicting opinions.

Supporters of neutrality argue that if Internet has grown so fast, it is due to its neutrality and that taking it away would leave internet in corporate hands. They argue that this would deter innovation and raise prices because firms in charge of the internet will abuse of their dominant position to clear the field of any competitors and discriminate on the prices allowing people who pay more to have faster access to internet. One of the main features of Internet is its lack of direction and they argue that this has spurted major innovation. Supporters of less neutrality argue that the investments needed for the internet to go to the next level will only be provided if enough incentives are given. They also argue that regulations means higher costs for internet providers and that providers should be able to discriminate to deliver to each user exactly what he has paid for, no more, no less. They also believe that discrimination will mean more competition, more innovation by matching more effectively supply and demand.

Both groups reject the latest regulation in the United States, the requalification of the Internet as a tool of communication under title 2. The first one finds the regulation gives too much power to the Federal Communication Commission (FCC) and that the FCC will use this newfound authority to regulate and restrict the Internet. The FCC has said they will not use all of the provisions of the law but they fear that once you open the door, there will only be more and more regulation. The second group says that this will cripple firms forcing them to transfer costs to end users making Internet less attractive. It forces them to make standardized pack giving to customers more or less (depending on which point of view (customer or firm) you consider) than what they need.

The United States are presently more net neutrals than the European Union simply because Europe lacks a harmonized canvas concerning net neutrality but they are headed in the same direction. New regulation should increase competition and lower price for consumers but they should avoid going as far as the United States if they do not want to anger internet activists, champions of a free and open internet. The economic benefits in Europe are easily predictable because they are the result of larger market for Internet.

The drivers of innovation, competition and prices are much more complex. Supporters and opponents of net neutrality both base their analysis on previsions and guesses. Here are a few examples to illustrate my point. On the one hand, supporters say that a major innovation could not happen if we discriminate on Internet. They also fear that firms will abuse of their power. On the other hand, opponents say that they need to adapt to the customer. They also argue that they do not have the resources to provide better and faster internet. Both could be right, both could be wrong and as always the answer lies in the middle.

Sources :
http://www.digitaltrends.com/web/fcc-reclassify-broadband-title-ii-explained/
https://www.ncta.com/TitleII
http://www.washingtonpost.com/opinions/settle-the-net-neutrality-debate-with-legislation/2015/02/11/9f130758-b0ac-11e4-827f-93f454140e2b_story.html
http://www.washingtonpost.com/opinions/ted-cruz-regulating-the-internet-threatens-entrepreneurial-freedom/2014/11/13/a0a852e6-6aaf-11e4-a31c-77759fc1eacc_story.html
http://www.washingtonpost.com/opinions/obamas-internet-rules-would-do-more-harm-than-good/2014/11/14/64a795d0-6b82-11e4-a31c-77759fc1eacc_story.html
http://ec.europa.eu/digital-agenda/en/net-neutrality-challenges
http://www.bbc.com/news/technology-26865869

Net neutrality is the concept that all the traffic on the internet is treated equally, and that no internet service can give an advantage to a content provider by allowing it a higher speed of services. Regarding this concept of net neutrality, the US and Europe are subject to variations.

In the US, on the 26th February 2015, the Federal Communications Commission (FCC) has voted to guarantee net neutrality under the title II of the Communications Acts (1) . This means that internet is now run as a public utility. Nonetheless, not everyone is satisfied of this recent change. NCTA, which is the trade associations for the cable industry in the US, is not in favor of rules about net neutrality for three main reasons (2) :
• Consumers will pay more;
• There will be less investments in network upgrades, innovation and service enhancements;
• The level of competition and consumer adoption will be reduced.

If we compare the above situation with the one of the EU, it seems that net neutrality is more visible in US and that the FCC has adopted stronger measures than in the EU.
Indeed, there are currently less rules on net neutrality at the EU level: it is subject to a wide variety of diverging rules in the different Member States. The result is that this fragmentation is costly for operators and unsatisfactory for end-users given that the hinder to provision of services across borders negatively impacts end-users’ willingness to consume these services (3).

That being said, some improvements are being pursued with, in March 2014, the adoption of several rules that included stronger requirements on net neutrality: internet service providers can’t block or slow down internet services provided by competitors. However, the majority of the member states of the EU have now also voted to allow a prioritization for specialized services that require a high quality access.

As one could expect, the point of views on net neutrality vary depending on the nature of the actor.
Internet activists militate for net neutrality in the name of freedom of expression in the sense that an internet service provider can’t interfere with what the users do on the internet. Moreover, they say that if the government gives privileges to big companies (for instance because the latter can afford high prices for “fast lane”), they are eventually going to control internet, which may be detrimental for start-ups.

Regarding the economists, 3 distinct points of view on network neutrality can be mentioned (4):

– The first point of view is that differentiation on quality and price can be beneficial for the consumers in absence of anticompetitive discrimination. For instance, in Europe, the prioritization of “specialized” services can be beneficial since the market in EU is more competitive than the one in the US. Indeed, in the US, the market is essentially duopolistic (with AT&T and Verizon (5)), while Europe is the playing field of much more telecom companies;
– In the second view, internet service providers can be seen as a two-multi sided platform since it connects providers of contents with end users. To this extent, there are some debates about the division of revenue and costs between these three actors;
– The last view concerns the economic foreclosure that may be harmful. In a situation of economic disclosure, one internet service provider that holds market power can extend this power to other players that can’t compete due to this excess of market power. It may be harmful in the sense that these internet service providers with a high market power can inhibit content providers to innovate and provide new applications, which create a deadweight loss for the society.

Next to these different views, numeral studies say that if the market competition is effective, market solutions are more efficient that regulatory solutions since the latter ignore market signals.

Lawyers, on their side, think nonetheless that internet is well too big platform to leave the big content providers make the rules.

Sources:
(1) http://www.digitaltrends.com/web/fcc-reclassify-broadband-title-ii-explained/
(2) https://www.ncta.com/TitleII
(3) http://ec.europa.eu/digital-agenda/en/eu-actions
(4)http://www.europarl.europa.eu/RegData/etudes/STUD/2014/518751/IPOL_STU%282014%29518751_EN.pdf
(5) http://blogs.wsj.com/corporate-intelligence/2014/08/20/att-vs-verizon-portrait-of-a-telecom-duopoly/

I) Difference between US and Europe in terms of net neutrality:

In order to ensure consumers´ protection and net neutrality, a regulatory framework should be imposed. It is obvious from the above that there is a link between the intensity of ‘network neutrality’ concerns and the competitiveness of the market for broadband access (fixed, mobile or otherwise).

Thus, in the US in order to regulate the market, the FCC(Federal Communications Commission) released it’s Open Internet Order where 3 principles were set and that broadband ISP have to follow :
1) ‘Transparency’: including in particular disclosure of “network management Practices” and performance characteristics of their services (the measure is transparent to the end-user)

2) ‘no blocking’ principle’: which applies differently to fixed and mobile ISPs. Fixed
ISPs are prevented from blocking any lawful content or non-harmful device, whereas mobile ISPs are prevented only from blocking lawful websites or applications which compete with their own services. (The end-user controls the measure. The FCC therefore allows the introduction of differentiated QoS towards end-users)

3) ‘No unreasonable discrimination’ principle: here only for fixed ISPs, whereby they may not unreasonably discriminate in transmitting lawful traffic.

Concerning the European regulatory framework, a number of issues relate to abuses of market power appear when competitors are excluded as a result of vertical integration or it appears when exclusive agreements between content providers and ISPs are made and would enjoy significant market power (or dominance). This behavior can consist in discrimination (not allowing competitors to benefit from the same QoS despite their willingness to pay) or blocking (either preventing affiliated content from being available via rival ISPs). EU Competition law can apply in such cases. Indeed, having this kind of behavior coming from a firm with significant market power and that it has an anticompetitive effect; it will be prohibited under Article 102 of the European Treaty (abuse of a dominant position. Thus, this article can be applied on the use of discriminatory terms and also on the blocking issues).
However, the European Commission has not reached the level of understanding of the longer term issues displayed by the FCC (Open internet ORDER). Thus, at a more fundamental level, the FCC analysis is a mix of technological and economic considerations, whereas the European Commission follows the general principles of EU electronic communications law, i.e. reliance on economic analysis and technological neutrality ‘.

II) Different opinions around net neutrality:

From an economics point of view, it is important to separate between content providers (google, Amazon), broadband providers (Verizon, BASE), Internet network manager (Belgacom, Verizon) and end-users. Broadband service pricing is unregulated and the debate on net neutrality is whether it should be regulated or not. Net neutrality advocates say that broadband providers must charge content providers a price of zero and must charge end users only in certain prescribed ways. Some think, that the way the internet architecture is, provides big incentives for innovation (Youube, Amazon) while other believe that this innovation could be better for consumers if it could respond to price signals from platform providers such as broadband producers. Thus, this is clearly a price regulation issue. On the other hand, proponents of net neutrality worry that broadband service providers can exercise monopoly power in the market for broadband connections and thus harm consumers. Thus net neutrality could also increase competition which would be beneficial for end users but could eventually reduce incentives for innovation. It would be important to asses which of the benefits or the costs of net neutrality is more important and act in consequences either in Europe or in the US.

In my opinion, having the European Pirate party in the European Parliament is essential for promoting net neutrality and the voters concerned with the net neutrality issue would need to support it. Since for this party, also present around the world, net neutrality is a key factor for innovation and for providing the best services for the end-use, indeed as Simon Frew (President pirate party Australia) stated: ´´The next Google or Facebook, being a start-up would not have access to a comparable speed and would find it more difficult to compete with the more powerful incumbents purely because they could afford access to the B-Grade internet. For the internet to remain a place of innovation any attempt to benefit some sections at the cost of others must be resisted.´´

III) Effects of regulation that already have been passed in a number of countries?

One of the countries that adopted a law for net neutrality provisions was the Netherlands. Article 7.4a guarantees net neutrality and prohibits providers of public electronic communication networks which deliver internet access services to slow down or hinder applications and services on the internet. They are also prohibited from making the price of the rates for Internet access services dependent on the services and applications which are offered or used via these services.

Following this regulation, two service providers KPN for its free hotspot strategy and Vodafone for its HBO strategy were being judged for not respecting the Net neutrality law. The two rulings generated a positive effect on the dutch telecoms market. Banning positive discrimination forces telecommunications providers to compete on general price and data volumes. KPN recently announced that it would increase data volumes and lower its prices for Internet use to “encourage carefree usage”. Thus, we clearly see that the law is beneficial for the countries that they adopted it. We hope that the law would be quickly adopted and imposed for the other European countries.

Sources:
https://edri.org/netherlands-two-telcos-fined-for-net-neutrality-violations/
http://www.toptechnews.com/article/index.php?story_id=12100B4EZSMJ
http://ec.europa.eu/digital-agenda/en/eu-actions
http://arstechnica.com/business/2015/02/fcc-votes-for-net-neutrality-a-ban-on-paid-fast-lanes-and-title-ii/
http://www.cs.columbia.edu/2014/net-neutrality/