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U.S. Appeal Court tosses FCC’s net neutrality rules

Is open internet at risk?

On 14 January 2014, the United States Court of Appeals for the District of Columbia Circuit, deciding a lawsuit brought by Verizon (Verizon v. FCC) has struck down the Federal Communications Commission's net neutrality rules, which prohibited Internet providers from blocking or prioritizing Web traffic.

The Verizon v. FCC case

The court was confronted with a Federal Communications Commission effort to apply “net neutrality”, namely compel broadband providers to treat all Internet traffic equally, regardless of source, for instance whether it was a YouTube video or a home video posted on a personal website. In a previous case on this matter (Comcast Corp. v. FCC, 2010), where Comcast, a big US cable company was intermittently blocking the use of an application called BitTorrent and, possibly, other peer-to-peer (P2P) file sharing programs on its network, the court held that the Commission had failed to cite any statutory authority that would justify its order compelling a broadband provider to adhere to open network management practices. The recent ruling, which is available on the court of Appeals website is the latest in a lengthy legal battle over whether the FCC can regulate the Internet.

Is broadband Internet an information service or a common carrier service?

This question is part of a major debate over the government’s role with respect to the Internet. Broadband is currently classified by the FCC as an information service, a category that gives the agency a fairly limited set of regulatory options. If instead Internet providers were classified as common carriers, the FCC's rule would likely stand. According to outside observers, the Federal Communications Commission, faced with this dilemma, may either choose to argue that its regulations do not fall under the rubric of common carriage, or attempt to reclassify broadband as a common carrier. Neither path is considered to be easy, as major industry players are expected to resist any attempt to reclassify broadband under Title II of the Communications Act. Nevetheless, the ruling left some room for FCC action by allowing the agency to police broadband use by bringing enforcement actions on a case-by-case basis against companies that act in an allegedly anti-competitive manner. The FCC also could weigh in on the issue when it considers cable-industry mergers, by imposing conditions on big players.

The implications for the industry and for consumers

From an industry viewpoint, the issue at stake is an Internet provider's ability to to pursue different service pricing models and charge for better service Web companies, such as Netflix and Google that generate almost half of the downstream traffic flowing via broadband networks to US consumers. In other words, if the ruling stands, bandwidth-hungry websites might have to pay tolls to ensure quality service. Smaller companies with limited financial resources might be limited if not excluded from offering high speed video streaming services. For consumers, the ruling could usher in an era of tiered Internet service, in which they get some content at full speed while other websites appear slower because their owners are unable or chose not to pay up. FCC Chairman Tom Wheeler indicated he was considering an appeal to the decision "to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans."

The European perspective

From a European perspective, the Connected Continent legislative package proposed by the European Commission includes guarantees of net neutrality. Such proposal is designed to implement two key EU Treaty principles, namely the freedom to provide and to consume digital services across the EU by establishing Europe-wide rules on transparency, switching and traffic management. The net neutrality provisions of the package intend to end discriminatory blocking and throttling of internet traffic. To this end, they go wider than the adequate measures in the US, since the European rules do not prevent blocking or throttling of services such as VOIP on mobile. The new rules will be introduced for voting to the European Parliament in April 2014.

Are any differentiations of commercial offers possible?

Companies in Europe would however be allowed to differentiate their offers by speed or other criteria and compete on enhanced quality of service. Such differentiation has indeed existed for postal services (express mail), trains and airlines (economy/business class). To meet end-users' demand for better service quality, content providers may strike deals with internet providers to assure a certain quality of service. Such offers will enable telecom operators to generate additional revenue streams from OTT players, content providers as well as from consumers who are willing to pay for better or faster services. These revenues in turn, will enable operators to finance investments into network upgrades and expansion. Specialised services must not lead to quality degradation of the "normal" (best effort) Internet since they are coherent with the way the web was engineered.

The role of BEREC

In April 2011, the European Commission asked the Body of European Regulators for Electronic Communications (BEREC) to undertake a fact-finding exercise on issues crucial to ensuring an open and neutral Internet, including barriers to changing operators, blocking or throttling of Internet traffic, transparency and quality of service. As a result, BEREC published in May 2012 the results of its traffic management investigation, which covered more than 400 fixed and mobile ISPs and gives a very good overview of traffic management practices in Europe. BEREC had also previously published a report on best practices to facilitate switching in October 2010 as well as a framework for quality of service in December 2011. At the same time, BEREC adopted guidelines on transparency by identifying best practices and recommended approaches. In December 2012, BEREC published its guidelines on quality of service as well as reports on differentiation practices and related competition issues, and IP Interconnection.

The BEREC views on Net Neutrality

On 17 October 2013, BEREC published an opinion on the Connected Continent package. With regard to its net neutrality provisions, BEREC declared it appreciates the Commission’s attempts to come to grips with what is one of the most challenging new regulatory arenas. It also stated that a more robust approach would be ensured by clarifying the extent of end-user freedom, by complementing the definition of specialised services, by clarifying their relationship to Internet Access Services (IAS) and by broadening the list of criteria to assess forbidden practices. Finally, in BEREC's expert view, the central role of National Regulatory Authorities should be clearly recognised in developing approaches to comparing IAS performance and measurement systems to identify degradation of service.

The value of net neutrality for consumers

To further investigate this matter, BEREC recently launched a call for tender to determine the value of net neutrality for European consumers. In this study empirical data shall be gathered on the behaviour and perceptions of end-users, as for instance their understanding of net neutrality-related information and the impact of direct users' subscriptions to Content Application Providers (CAPs). In addition to it, empirical evidence shall be collected on the incentives and constraints for IAS providers to differentiate traffic, focusing in particular on CAPs differentiation due to partnerships, such as bundled access and content service, particularly to favour data traffic over the access service from such CAP partners.

Broadband connectivity and openess at the heart of our innovative future

Despite any diverging approaches between governments, regulators, network operators and content providers in Europe, US and the rest of the world, the debate on freedom of speech and an open internet needs to continue in a balanced and constructive manner. All parties need to understand that our societies need not just basic broadband, but high quality connections that are universal, open, fast and enabling. Connectivity, open source, open data, transparency legislation, fair competition between market players, value-based pricing patterns and consumer rights are at the heart of our innovative future.

Dr. Leonidas Kanellos

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