The issue of net neutrality is certainly the current hot topic in the world of telecoms regulation. I thought I would just add a few (personal) thoughts on the matter following this week’s (in my view) shocking news from the Netherlands and Slovenia. This of course has relevance to anywhere where net neutrality is under discussion - specifically including the European Union and the USA.

First Principles

To take an approach from first principles my view is that regulators ought not to intervene and impose ex ante regulations (such as a net neutrality requirement) on market players unless there one (or more) of the participants has market power – and then they should only do so to the extent necessary to counteract that market power. This, of course, is exactly the approach taken by the EU in respect of most telecoms matters (leaving aside roaming but that’s another story) – regulations cannot be imposed in this way before the national regulator has conducted a review of the relevant market, and then only if they find that an operator has “significant market power” (SMP).

In the absence of specific regulation, then, ISPs are free to offer services in any way they choose. However if it later turns out that there has been any anti-competitive conduct (in this context meaning an abuse of a dominant position by an ISP or telecoms operator) then it would be appropriate to address this by the normal principles of competition law – ie an investigation leading to possible criminal sanctions and fines.

This consistent and logical system is designed to minimise the need for interference in the market, reserving regulatory intervention only where specifically justified.

In the context of net neutrality, then, this approach would tend to suggest that regulators should prevent behaviour by ISPs only if those ISPs have been found to have market power, or else only where it amounts to an abuse of a dominant position.

Today’s news

I was shocked to read news yesterday that the regulator in the Netherlands has fined Vodafone €200,000 for “zero-rating” the HBO-Go service – meaning not charging customers for the data use involved in using the service. KPN was also fined for blocking (not zero-rating) a particular VoIP service.

Similarly, also this week, it was announced that Slovenian operators Telekom Slovenije and Si.mobil have been fined for, respectively, zero-rating the Deezer music service and the “Hangar mapa” cloud storage service

In none of these cases has the “first principles” approach been applied. Instead there are specific regulations in place in both countries which appear to have the effect of allowing the regulator to issue fines and to interfere in the market without having previously made a determination that the operator concerned has SMP and without having to determine that there is an abuse of a dominant position.

The “zero-rating” examples are good case studies. The effect of this interpretation of the net neutrality rules is that customers in the Netherlands and in Slovenia have been denied the opportunity to access innovative services which challenge more established players in their particular market. It, will, now, be harder for HBO to challenge Netflix, harder for Deezer to challenge Spotify and harder for Hangar Mapa to challenge Dropbox, Google Drive and others.

This seems a very perverse outcome for regulations which ostensibly exist to foster innovation and encourage the startups to compete against the bigger more established players. It seems they are having quite the opposite effect. We will see whether any final regulation from the European Commission on net neutrality would also bite on zero-rating.

As a postscript I’d just add a few words on the KPN issue (where it was fined for blocking a VoIP service on free wif-fi hotspots). Whilst it may  be right that this type of behaviour should not be permitted I would still maintain that the best way to deal with it under the European legal system would be to look into whether blocking VoIP services constitutes an abuse by (in this case) KPN of their dominant position in a relevant market. This will of course involve an analysis of what the “relevant market” is – not a simple exercise – but if the blocking only applied to the use of a free wi-fi service, it’s not obvious that this is in fact an abuse – and the effect of the fine may be to discourage KPN and others from offering free wif-fi at all.