In April of this year, the European Parliament adopted a series of amendments to the European Commission's draft Connected Continent Regulation (the Regulation), which aims to reform the EU's telecoms rules. Amongst the most controversial of the amendments proposed are those dealing with net neutrality.

Similar debates are taking place in other major jurisdictions, notably the US where a federal court struck down the last attempt by the Federal Communications Commission (FCC) to keep its promise to protect the Internet and guarantee net neutrality. The setback for the FCC has, again, thrown into question both the legal basis for net neutrality rules and the types of behaviours that should be permitted. Particularly controversial is whether companies that control the ¡§last mile¡¨ of broadband should be permitted to charge both their own broadband customers and the over-the-top service providers like Netflix that those customers are trying to reach.

Net neutrality in context

With recent advances in technology, Internet Service Providers (ISPs) are able to manage the flow of web traffic from content providers to consumers. This opens up the possibility that one ISP can deliver certain content faster than others. A fierce debate has consequently opened up as to whether all content should be treated equally on the Internet and, if not, to what extent ISPs should be allowed to discriminate between content providers and prioritise certain traffic to and from those providers.

On one side of the debate are "openists", for whom net neutrality is essential to the creation of a single telecoms market because it promotes competition and innovation. Without measures to protect net neutrality, they argue, big content players will be able to buy up faster access and squeeze out their smaller rivals. On the other side sit "regulationists", who claim that any remuneration received by the ISPs through discriminating between different content providers can enable investment in the maintenance and expansion of overall Internet capacity, to the ultimate benefit of consumers. Also an important part of the debate are IP owners, such as the film industry, which point out that net neutrality must not jeopardise traffic management by ISPs as an important weapon in the fight against illegal file sharing sites.

The current position under EU law

The European Union last adopted a comprehensive overhaul of the regulatory regime for telecommunications in 2009 with the adoption of a package of five new directives as part of its "Digital Agenda".

This legislation came into force in May 2011 and sought, amongst other things, to ensure that EU Member States promote the ability of Internet users to access and distribute information or run applications and services of their choice. ISPs are also under an obligation to be fully transparent with their customers as to any restrictions limiting access to services or applications. However, it contains no set definition of net neutrality and the prevailing view is that the rules do not per se prevent traffic management by the ISPs.

Whilst EU policymakers and interest groups have since debated what further action is needed, various EU Member States have decided to adopt their own legislation. For example, in May 2012, the Dutch legislature approved a series of laws which prohibit the blocking of Internet services, usage of "deep packet" technology to track customer behaviour and any other measures taken by telecommunications providers to otherwise filter or manipulate network traffic. In January 2013, Slovenia passed a new law which explicitly defines and requires net neutrality from telecommunications operators.

The European Parliament's position

The European Parliament's amendments to the Regulation appear to show that there is now significant political momentum behind the concept of ISP non-discrimination in the EU. The guiding principle under the Regulation is that ISPs will not block, slow down, degrade or otherwise discriminate against specific content, except for network management.

Parliament decided to narrow considerably the action ISPs can take for the purposes of network management. Under the revised Regulation, network management would be limited to technical measures that are necessary for reasons of network security and/or to reduce temporary congestion. The European Parliament's amendments even appear to prevent measures being taken to block illegal content, other than where a court order requires otherwise. It is a somewhat surprising stance to take in the light of action being taken at an international level to protect children from accessing harmful content over the Internet. This was a point expressly made by Ed Richards, Ofcom's Chief Executive, in a recent speech which cautioned against over-prescriptive rules on Internet traffic management.

Similarly, whereas the European Commission's original text excluded so-called "specialised services" from the general obligations referenced above, the European Parliament has decided that any such exception to net neutrality must be narrowly interpreted to include only those services which are: "optimised for specific content, applications or services provided over a logically distinct capacity, relying on strict admission control ¡K and that is not marketed or usable as a substitute for Internet access services."

Finally, under the proposed new Regulation, ISPs will be able to offer such services provided only that there is sufficient extra network capacity to continue to provide other Internet access services at the same level of quality. These amendments appear to be targeted specifically at over-the-top (OTT) type services, e.g. video streaming ƒ{ the European Parliament apparently does not want the exception being used to ensure that such services receive any priority over others hosted by an ISP.

The US position

As long ago as 2005, the FCC issued an Internet Policy Statement to proclaim the agency¡¦s goal of preserving and promoting the open and interconnected nature of the public Internet. The agency¡¦s choice to issue a policy statement rather than to adopt rules reflected ambivalence towards both the legal basis for regulating net neutrality and the substance of any rule. By stating principles and goals rather than adopting rules, the FCC was able to warn companies against undesirable behaviour and encourage self-regulation while delaying the prospect of damaging challenges to its authority to adopt net neutrality rules.

Eventually, the FCC sanctioned an ISP, Comcast, for violating the principles. Unfortunately, for the agency, the United States Court of Appeals for the District of Columbia Circuit (DC Circuit) in 2010 agreed with Comcast that the FCC lacked the authority to sanction Comcast for violating the Internet Policy Statement. In response, the FCC passed the Open Internet Order to impose enforceable rules to protect the net neutrality principles that the agency had previously articulated. These rules, among other things, required wireline broadband Internet access service providers to treat lawful content, applications and services in a non-discriminatory manner. In response to an appeal of the Open Internet Order by Verizon, the DC Circuit provided the FCC with yet another setback by ruling that the agency had failed to articulate a sufficient legal basis for the net neutrality rules. The main limitation to the FCC¡¦s jurisdiction arises from the agency¡¦s previous decision to classify broadband services as information services (which generally are not subject to regulation) instead of telecommunication services (which are subject to common carrier regulation). The DC Circuit¡¦s decision in Verizon left open the possibility, however, that net neutrality rules would be possible if the FCC either ¡§reclassified¡¨ broadband services as telecommunications services or identified other statutory bases for the rules, although the rules would have to be consistent with the agency¡¦s basis for them.

The Verizon decision has placed enormous pressure on the FCC to fill the void created by the absence of enforceable open Internet principles or rules, and prompted a fresh and very public debate regarding the extent to which the FCC can (and indeed should) regulate net neutrality. On 15 May, despite significant public opposition and scepticism by four of the five FCC Commissioners, the FCC issued a Notice of Proposed Rulemaking (NPRM) requesting comment on new net neutrality rules.

One of the most controversial proposals on which the FCC requested public comment is the proposal to permit broadband providers to create pay-for-play "fast lanes" for companies willing to pay for the privilege of faster transmission of their services so long as the terms and conditions for the ¡§fast lanes¡¨ meet a vague "commercial reasonableness" standard. Several classes of consumers, companies and interested parties, including venture capitalists and intellectual property rights holders, have continued to express vigorous opposition to any ability by broadband providers to charge both their own customers and the service providers the customers are trying to reach.

The FCC's request for comment on whether it should reclassify broadband services is expressly designed to avoid the legal issues that have blighted its previous efforts to regulate in this area. This idea is unsurprisingly vehemently opposed by facilities-based broadband service providers, who argue it will discourage investment in network infrastructure to the detriment of consumers.

In short, the FCC's Net Neutrality NPRM has drawn fire from all sides. Some parties argue that without enforceable net neutrality rules, the price for OTT services and applications may increase significantly for companies that can afford to pay for faster traffic, which would make it harder for smaller companies and start-ups to find a foothold in the Internet-based services market since many would be unable to afford paying for faster traffic. By contrast, other parties argue that the imposition of strong net neutrality rules, particularly if the FCC reclassifies broadband services as regulated telecommunications services, could inhibit broadband investment and the introduction of innovative new products and services. No consensus regarding the legal basis for net neutrality rules or the types of behaviours that should be permitted appears to be coalescing at this time, and there is no sign that this will change in the near future.

EU v. the US: a divergence of approach?

Whereas proposals on both sides of the Atlantic to deal with net neutrality have caused significant debate, as things currently stand it appears that the EU could end up with stricter net neutrality rules than the US. However, this is by no means a foregone conclusion. The next step in the EU legislative process is for the Council of Ministers to debate the Parliament's draft and to adopt a common position on the Regulation to be approved by the Parliament and the European Commission. With European elections imminent and a new set of commissioners due to be appointed later this year, it is unlikely the new Regulation will be in anything approaching a final form until the start of 2015 at the very earliest. Meanwhile, the furore caused by the FCC's proposals shows no sign of abating any time soon.

Predicting the final outcome is no easy task. What is more certain, however, is that lobbying efforts will intensify as legislators get closer to reaching a final verdict, particularly given that the devil is in the details for net neutrality. Between now and then, those affected by net neutrality, as nearly all are, will need to consider carefully what that verdict might mean for their businesses.