The economic relationship between over-the-top service providers (OTTs) and internet service providers (ISPs) – telecom and cable companies – is multifaceted. On one level, ISPs provide the network infrastructure that OTTs use (a vertical relationship). On another, some OTTs provide services that compete with the business models of telecom and cable operators (a horizontal relationship).
At the same time, we need to be active with the so-called ‘over the top players’, extremely powerful these days. Every time they try to abuse their market power creating serious imbalances to the detriment of those who invested in the network, we will trigger our antitrust instruments.’
Joaquín Almunia, Vice President of the European Commission
OTTs – such as Netflix, WhatsApp, YouTube and Amazon – are putting increasing pressure on telecom and cable operators (for more information clickhere). And competition law looks set to play an important role in this ongoing challenge. Here, we look at the competition law implications of OTTs, in particular as far as ISPs are concerned.
Competition authorities used to focus on the behaviour of ISPs, for example on traffic blocking and throttling practices, and whether this amounted to the anti-competitive abuse of a dominant position. While authorities and regulators will continue to monitor ISPs’ behaviour, OTTs are also getting attention. Statements from top officials, such as Joaquín Almunia, highlight this trend.
Which ISP and OTT behaviours might the European Commission and national competition authorities regard as anti-competitive?
Potential anti-competitive conduct of ISPs
Telecom and cable companies are faced with the allegation of having an incentive to block or throttle the traffic of OTTs that use their network infrastructure free of charge (for more information click here). In 2013, the European Commission carried out unannounced inspections at several telecom companies that provide internet connectivity across Europe. These inspections usually precede an investigation into suspected anti-competitive practices. But the European Commission has not opened formal antitrust proceedings so far.
The underlying concern relates to the principle of ‘net neutrality’, whereby ISPs are required to treat all traffic equally. In its legislative package for a ‘connected continent’, the European Commission has shown that it intends to ban blocking and throttling practices, while leaving certain revenue opportunities (‘specialised services’) open for network operators. It remains to be seen to what extent traffic management will be regulated once the Council of the European Union has adopted the Commission’s proposal. It is also up for debate whether the Commission will find it necessary to do more to address ISPs’ conduct and use antitrust instruments.
Potential anti-competitive conduct of OTTs
It’s not just the ISPs who are being scrutinised. OTTs have also been accused of anti-competitive conduct against ISPs.
At the beginning of 2013, for example, Netflix was delivering its higher quality service (Super HD) only to customers whose cable providers had signed up with ‘Netflix Open Connect’, a service that lets ISPs directly connect their networks to the content delivery network. Through this behaviour, Netflix could have closed off access to certain content formats, as a cable company alleged. In the end, Netflix opened its higher quality service to all subscribers, irrespective of whether their ISPs were part of Netflix’s Open Connect network.
In a more recent example, YouTube’s new music-streaming service has been the centre of controversy. Google and YouTube have been accused of making independent music labels agree to draconian terms, in particular a clause in relation to the royalties agreed with the major labels (ie the lowest royalty agreement with a major label determines the royalties YouTube will pay). In June 2014, Impala (the independent music companies’ association) filed a complaint with the European Commission, and the Commission may open official proceedings later this year. Further, there have been complaints to the Commission recently, alleging Google abuses the market position of its Android mobile operating system to promote services such as search, maps or other apps.
These examples show that the regulators recognise OTTs as powerful companies capable of using their market power to the detriment of ISPs or IP rights holders, and potentially to the detriment of consumers. But when assessing this type of case under competition law, it must be kept in mind that competition law does not ban a dominant position per se. Dominance must be analysed on a case-by-case basis to determine whether it is being abused.
Other competitive concerns related to OTTs
Apart from allegations of anti-competitive behaviour, the competitive situations of OTTs will be assessed in other proceedings.
Facebook’s acquisition of WhatsApp, for example, is being analysed by the European Commission. In the merger control proceedings, the Commission will have to clarify its view on OTT messaging services and how they compete with similar communication services of other OTTs, as well with the offerings of telecom and cable operators.
Recently, in the merger control proceeding regarding the acquisition of Dutch cable operator Ziggo by Liberty Global, the Commission was concerned that the merged entity might have the ability and incentive to shut out OTT TV service providers from effective access to its internet network either contractually or technically, to strengthen its own competitive position in various TV-related markets. However, the Commission seems willing to accept Liberty’s commitment not to restrict the possibility for broadcasters to provide their content over-the-top.
Another challenge to antitrust authorities will be the assessment of so-called walled gardens – for example in the context of app stores and social media. For instance, Facebook prevents search engines from indexing most of its content, such that only limited information can cross the ‘wall’. Whether competition law allows an OTT to use a walled garden to foreclose competitors on upstream or downstream markets cannot be answered in the abstract, but will need a case-by-case analysis. In particular, there might be legitimate reasons for certain behaviour.
It isn’t yet clear how the European Commission and national authorities will use the antitrust instruments in their armouries to curb the business models of OTTs. One thing’s for sure, though, authorities will be keeping an eye on them.