Response to the Consultation on the BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules 18.

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1 BoR PC 01 (16) 055 Konrad-Adenauer-Stiftung e.v Berlin Response to the Consultation on the BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules 18. July 2016 The Konrad-Adenauer-Stiftung welcomes the opportunity to comment on the BEREC draft guidelines on the implementation by national regulators of European Net Neutrality Rules. The Konrad-Adenauer-Stiftung is a political foundation. As a think-tank and consulting agency, our scientific based analyses driven by the principle of the social-market economy are meant to offer a basis for possible political action. General Remarks Committed to the ordoliberal approach in economic and regulatory policies, the Konrad-Adenauer-Stiftung places special value on the need for a clear regulatory framework for the digital economy, which secures both Open Internet and investment in new and innovative networks and services. For us, it is of utmost importance that consumers, businesses, the scientific community, and civil society are able to exercise their rights. We place special value on the freedom of expression. The cultural diversity of the Internet and media pluralism must be preserved. In terms of legal certainty, the current draft as presented will most likely require further refinement. The Konrad-Adenauer- Stiftung doubts that the Guidelines in their current form will Konrad-Adenauer-Stiftung e.v. Klingelhöferstr Berlin Telefon: +49(0) Commerzbank AG Bonn Kto.-Nr BLZ IBAN: DE BIC: COBADEFF

2 indeed facilitate the work of national regulatory authorities throughout the EU or improve competition in broadband access markets. Faced with the exponential growth of network traffic in electronic communications, the Guidelines must offer a clear basis for making decision by national regulators when it comes to meeting customers expectations regarding the quality of services. They must also secure legal certainty when it comes to investment in new and innovative services. Before addressing the specific points in the draft Guidelines, our general impression is that BEREC rewrites what has already been stated in the regulation and does not necessarily concretize it. The Regulation 1 introduces supervision and enforcement competences for the National Regulatory Authorities (NRAs) to closely monitor and ensure compliance with the rules to safeguard equal and non-discriminatory treatment of traffic in the provision of Internet access services and related end-user rights. Therefore, in the following section, we will highlight and discuss specific points regarding Article 3 of the Regulation, i.e. the BEREC interpretation on the provisions safeguarding Open Internet access. End-users Right to Open Internet In this section, the Guidelines precisely explain three aspects with regard to Open Internet: the right to access and distribute information and content, the right to consumption and provision of applications and services, and the right to use terminal equipment of their choice. In Para. 24, the BEREC states [ ] NRAs should assess whether an Internet Service Provider (ISP) provides equipment for its subscribers and restricts the end-users ability to replace that equipment with their own equipment, i.e. whether it provides obligatory equipment. While it is right to question the ability to replace that equipment, in our opinion it is more important to check whether the end-users are in fact bound to the provided equipment by the agreement on commercial conditions that have an effect on the right to replace terminal equipment. 1 Regulation (EU) 2015/2120 of the European Parliament and of the Council of 25 November 2015 laying down measures concerning Open Internet access and amending Directive 2002/22/EC on universal service and users rights relating to electronic communications networks and services and Regulation (EU) No. 531/2012 on roaming on public mobile communications networks within the Union. Seite 2 von 7

3 Freedom to Conclude Agreements not limiting the Right to Open Internet The Konrad-Adenauer-Stiftung also believes that as long as the technical conditions are applied in an application-agnostic way, end-users rights are likely to be unaffected. It is also in the line with the competition practice in the EU that, in the initial period of introduction or as an offer to all new subscribers, a bundle of services raises no concern and therefore must be allowed. However, the fact that all new applications that do not qualify to be categorized as a specialised service must be treated and priced equally within the predefined category, even when there is consumer readiness to pay for a better product, will be a practice that in the end stifles innovation and competition. Special Commercial Practice Zero Rating With regard to the commercial practice of Zero rating, the Guidelines generally differentiate between Zero rating for an entire category of applications or only for certain applications in a specific category. In the latter case, the BEREC considers that this commercial practice creates an economic incentive to use that application instead of competing applications. 2 Thus, BEREC recognizes that end-users rights are undermined a situation where end-users choice is materially reduced in practice (Recital 7). In the following section, the Guidelines correctly point out that not every factor affecting end-users choices should be considered to limit the exercise of end-users rights under Article 3(1). Instead of explaining the notion of choice being materially reduced, the Guidelines offer an extensive list of considerations of commercial and technical conditions that do not necessarily follow one of the aims of the Regulation: to guarantee the continued functioning of the Internet ecosystem as an engine of innovation (Recital 1). In Para. 43, the BEREC refers to a strong market position and argues that it is in line with competition law principles. In Recital 7, the Regulation correctly recommends that NRAs take into account the respective market positions of those providers of Internet access services and of the providers of 2 Para 39, Draft Guidelines. Seite 3 von 7

4 content, applications, and services that are involved. The threshold for regulatory intervention according to the Guidelines (strong market position) is not in line with the established criteria for assessment of market power in the field of electronic communications - the presence of significant market power. It is unclear why BEREC operates with terms atypical for regulatory interventions for the purpose of assessment of factors that contribute to a material reduction in end-user choice and limitation of the exercise of end-user rights. If this means that BEREC will cooperate with competition authorities to establish a common understanding of strong market positions, including the market positions of the CAPs involved, this could be seen as a more appropriate approach than building on existing SMP designations in electronic communication markets. However, this is not stated sufficiently clear in the Guidelines. Moreover, price differentiation between individual applications within a category certainly has an impact on competition between providers in that class 3 (Para. 45, 4 th bullet point), since price is one of the most important competitive parameters that encourages the development of new applications. We consider the impossibility to apply different prices 4 as a strong disincentive for innovation. The final outcome of such a regulatory practice will be the restriction of choice for end-users. Additionally, it is our impression that these guidelines are also directed to authorities other than NRAs, although it is not clear which authorities and which competences are implied. 5 The lack of designation of competent authorities is also problematic because it may lead to future disputes. It would be helpful to specify which types of authorities may qualify, e.g. competition authorities but not content regulators. Traffic Management Measures The Regulation stipulates the principle that providers of Internet access services shall treat all traffic equally. Given the objectively different technical quality of service requirements for specific categories of traffic, and thus of the content, applications, and services transmitted, the 3 Para. 45, 3 rd bullet point, Draft Guidelines. 4 Para 45, 2 nd bullet point, Draft Guidelines. 5 Para. 45, Draft Guidelines. Seite 4 von 7

5 Regulation refers to efficient use of network resources. While the Regulation establishes the principles of transparency, non-discrimination, and proportionality, it clearly restricts the possibility for traffic management based on commercial consideration. The main issue here is what the NRAs will consider as reasonable traffic management. BEREC, for this purpose, relies on the established competition law and regulatory practice in the EU. Proportional traffic management (proportionality check) must have a legitimate aim, be suitable, necessary to achieve the aim, be indispensable, and appropriate. In other words, BEREC suggests regulatory assessment similar to the regulatory practice in bottleneck situations. The prohibition introduced with the Regulation for differentiation based on commercial considerations remains unclear. The Guidelines strictly rewrite the wording of the Regulation, stating that measures based on commercial ground should be regarded as unreasonable. This is clearly shortsighted and not compatible with the established economic system in the EU. In line with the principle of non-discrimination, the Guidelines require a similar situation in terms of comparable technical quality of service requirements to receive similar treatment. However, when it comes to objectively different technical quality of services, BEREC follows a different logic. Despite the different technical quality of services, commercial consideration may not be justified at all. This does not seem to be consistent with the objective of efficiency in the use of networks when it comes to reasonable traffic management. Whether objectively different quality of services may justify different commercial considerations on the side of the provider of such a service is currently left unanswered by the Guidelines. We suggest including an affirmation that superior quality may be reflected in higher prices, like in any other competitive market. Measures beyond Reasonable Traffic Management The exhaustive list in Article 3(3) third subparagraph of the Regulation addresses a permissible measure preventing impending network congestion that mitigates the effects of exceptional or temporary network congestion, provided that equivalent categories of traffic are treated equally. We agree that exceptional congestion management can only be applied as necessary and only for as long as needed. It is clear that application-specific congestion measures should not be Seite 5 von 7

6 applied as a substitute for a more structural solution. However, we question whether the mere prohibition of frequent application of exceptional congestion management and the current traffic management legal framework will indeed induce the ISPs to properly optimize their networks. Services other than Internet Access Services Currently, the entire net neutrality debate is driven by the fact that electronic communications networks have limited capacity. Abusive behaviour on the part of several incumbent operators fuelled the debate. However, the competitive nature of the broadband Internet market generally remedied this problem. BEREC correctly points out that IAS and specialized services could compete for overall network resources. A significant part of the Guidelines, however, do not follow this logic. By explicitly stating that it is the general quality of the IAS that is protected from degradation by the Regulation, rather than specialized services, the Guidelines restrict the scope of what is already provided for in the Regulation. Namely, the possibility of providing services other than Internet access services is stipulated by the Regulation. The conditionality imposed upon the possibility of offering specialised services contradicts the fact that the specialised services are not a replacement for Internet access services, as well as the fact that those services are offered through a connection logically separated from the IAS. The eligibility criteria for specialised services provided in Article 3(5) first subparagraph refer to a specific level of quality and optimization necessary in order to meet the requirements of the content, applications or services. Following the understanding that categories of traffic are to be clearly distinguished from specialised services, one may expect a different approach by the NRAs. Requesting the provider to demonstrate, however, that the specific level of quality cannot be assured over the IAS 6 is not in line with the logic of specialised services. Theoretically, every service may be offered via the IAS, but not at a level of optimization specific content may deserve. 6 Para. 104, Draft Guidelines. Seite 6 von 7

7 Final Remarks The Konrad-Adenauer-Stiftung has serious doubt that the Guidelines, if adopted in this form, will contribute to regulatory certainty for stakeholders and greater harmonization in the EU, although they are rules of practice and not rule of law. We deem that the Regulation guarantees that users can access Open Internet. The imposed, farreaching transparency measures will improve the situation even more. Consumers must be able to access any content and run any application on the device they choose. However, any further limitation as suggested in the Guidelines in respect to traffic management and specialized services will have a detrimental effect on innovation and user experiences. Konrad-Adenauer-Stiftung e.v. Department Politics and Consulting Team Digitalisation Dr. Pencho Kuzev LL.M Project Coordinator Telefon: +49(0) Telefax: +49(0) pencho.kuzev@kas.de Seite 7 von 7