- Spitfire List - http://spitfirelist.com -

The EU Strikes a Blow For Net Neutrality. And Against it.

Last Sep­tem­ber, the EU fleshed out its plans for a major tele­com reg­u­la­to­ry over­haul. The pack­age of pro­pos­als, cham­pi­oned by EU Dig­i­tal Agen­da com­mis­sion­er Neel­ie Kroes, includ­ed the very sig­nif­i­cant dec­la­ra­tion of an EU ded­i­ca­tion to pro­tect­ing net neu­tral­i­ty [1]. From a dig­i­tal social jus­tice stand­point, net neu­tral­i­ty is a crit­i­cal right [2] so the EU’s announced reform pack­age was, in many ways, some very good news [3]:

TechCrunch
Europe Lays Out Its Most Ambi­tious Reform Plan Yet: No More Roam­ing Pre­mi­ums, Enforced Net Neu­tral­i­ty, And More
Post­ed Sep 11, 2013 by Ingrid Lun­den

The Euro­pean Com­mis­sion [4] has over the years been chip­ping away at how big car­ri­ers have milked Euro­pean con­sumers in areas like inter­na­tion­al call­ing charges and broad­band usage for cer­tain con­tent. Now, in a spir­it of get­ting the region of 28 dis­parate nations to behave as one, the reg­u­la­tors have tak­en their biggest swing of the bat yet: a new leg­isla­tive pack­age that pro­pos­es to cut out inter­na­tion­al call­ing pre­mi­ums and ser­vices that offer dif­fer­ent broad­band speeds depend­ing on the con­tent broad­cast; and on the car­ri­er side new rules that would effec­tive­ly cut down red take to make Europe into a sin­gle mar­ket.

The Com­mis­sion, which for­mal­ly laid out its inten­tions today but has been work­ing on them for a while [5], is call­ing the plan its most ambi­tious in 26 years. If it gets approved, it could have huge impli­ca­tions not just for con­sumers and their big car­ri­er over­lords, but also on new­er play­ers like OTT video providers and star­tups offer­ing net­worked ser­vices.

But whether the EC will ever man­age to get big car­ri­ers and coun­tries to agree to it will be anoth­er sto­ry. We’ve already seen lob­by­ists mak­ing pre-emp­tive attempts to scup­per [6] the pro­pos­als, with Europe forg­ing ahead any­way [7]. If approved, the first changes could start to take effect by July 2014.

“Fur­ther sub­stan­tial progress towards a Euro­pean sin­gle mar­ket for tele­coms is essen­tial for Europe’s strate­gic inter­ests and eco­nom­ic progress,” EC pres­i­dent Jose Manuel Bar­roso said in a speech today in Brus­sels, “for the tele­coms sec­tor itself and for cit­i­zens who are frus­trat­ed that they do not have full and fair access to inter­net and mobile ser­vices.”

VP Neel­ie Kroes, the Dig­i­tal Agen­da com­mis­sion­er who has long been argu­ing for these changes, was behind this new pack­age. “The leg­is­la­tion pro­posed today is great news for the future of mobile and inter­net in Europe,” she said in a state­ment. “The Euro­pean Com­mis­sion says no to roam­ing pre­mi­ums, yes to net neu­tral­i­ty, yes to invest­ment, yes to new jobs. Fix­ing the tele­coms sec­tor is no longer about this one sec­tor but about sup­port­ing the sus­tain­able devel­op­ment of all sec­tors.”

Right now, the EC esti­mates that tele­coms ser­vices account for 9% of Europe’s dig­i­tal econ­o­my “because all sec­tors increas­ing­ly depend on con­nec­tiv­i­ty to be glob­al­ly com­pet­i­tive and deliv­er ser­vices.” The idea is that by bring­ing down some of these exist­ing bar­ri­ers, that per­cent­age — and the econ­o­my — will grow. Despite many years of incre­men­tal reforms, “there is no tele­coms com­pa­ny that oper­ates across the whole EU, and both oper­a­tors and cus­tomers face dif­fer­ing prices and rules,” the Com­mis­sion not­ed in a state­ment today.

Here’s the run-down of some of the high­lights of the new pro­pos­als, with the lat­est draft of the pro­pos­als, and a sum­ma­ry, embed­ded below that.

Sin­gle set of rules for car­ri­ers to fol­low: Those who are rolling out ser­vices across all 28 mar­kets in Europe would need only a sin­gle autho­riza­tion rather than 28.

No more roam­ing pre­mi­ums on inbound calls: From July 2014, no more incom­ing call charges across the EU. Also car­ri­ers will either offer sin­gle Euro­pean price plans or the abil­i­ty to let con­sumers eas­i­ly select car­ri­ers that offer call­ing plans out­side a user’s home mar­ket. (Since 2012, car­ri­ers already have been forced to offer cheap­er prices for mobile data; this builds on that.)

No more roam­ing call charges out­bound: This applies to both mobile and fixed calls and would make the price of a call with­in the EU the same price as a call in your home coun­try. (Long dis­tance becomes the same price as local.)

Net neu­tral­i­ty: Mak­ing sure broad­band car­ri­ers are not short-chang­ing con­sumers over cer­tain con­tent by throt­tling speeds has been a long-argued issue in Europe and oth­er parts of the world. This is the EC’s attempt to right the issue once and for all here. Car­ri­ers will not be allowed to block or slow down deliv­ery of cer­tain con­tent; they will how­ev­er be allowed to offer dif­fer­ent kinds of ser­vices that allow for some stream­ing (such as data-inten­sive video) and not oth­ers. Users who feel they are get­ting short­changed can walk away with no penal­ties, or as the EC puts it, “the oblig­a­tion on providers to pro­vide unhin­dered con­nec­tion to all con­tent, appli­ca­tions or ser­vices being accessed by end-users – also referred to as Net Neu­tral­i­ty – while reg­u­lat­ing the use of traf­fic man­age­ment mea­sures by oper­a­tors in respect of gen­er­al inter­net access.”

...

The EU’s declared ded­i­ca­tion to net neu­tral­i­ty was great news back in Sep­tem­ber, but after the recent US appeals court rul­ing strik­ing down net neu­tral­i­ty in the US [8], a ded­i­ca­tion to net neu­tral­i­ty also becomes a busi­ness oppor­tu­ni­ty because if the US wants to turn itself into the land of inter­net inequal­i­ty there’s noth­ing stop­ping the EU from loud­ly point­ing this out. Of course, it helps if the EU’s ver­sion of net neu­tral­i­ty actu­al­ly results in net neu­tral­i­ty [9]:

GigaOm
Can Europe real­ly offer star­tups a bet­ter deal on net neu­tral­i­ty?
By David Mey­er
Jan. 15, 2014 — 7:15 AM PST

Sum­ma­ry:
Europe’s dig­i­tal chief is already claim­ing that “new­ly dis­ad­van­taged U.S. star­tups” should move across the Atlantic — but a sim­i­lar net neu­tral­i­ty dis­as­ter could still hap­pen in the EU, if key pro­pos­als aren’t tight­ened up.

As net neu­tral­i­ty goes down in flames [10] state­side…

Neel­ie Kroes @NeelieKroesEU

Watch­ing US #net­neu­tral­i­ty news [11]. Maybe I shd invite new­ly dis­ad­van­taged US star­tups to EU, so they have a fair chance http://online.wsj.com/news/articles/... [12]
5:35 AM — 15 Jan 2014 [13]
Appeals court strikes down FCC’s net neu­tral­i­ty rules [12]

A fed­er­al appeals court on Tues­day struck down the Fed­er­al Com­mu­ni­ca­tions Com­mis­sion’s open Inter­net rules on Tues­day, in a rul­ing that could give broad­band providers more room to charge con­tent... [12]
Wall Street Jour­nal @WSJ [14]
156 Retweets 54 favorites [13]

Kroes, the Euro­pean Com­mis­sion­er in charge of the dig­i­tal econ­o­my, has a point. The poten­tial end of net neu­tral­i­ty rules is going to be real­ly bad for U.S. con­sumers and star­tups [15] alike (as my col­league Stacey Hig­gin­both­am has not­ed [16], the likes of Google and Net­flix are actu­al­ly win­ners in this sce­nario, as they have deep pock­ets).

How­ev­er, some may dis­pute Kroes’s char­ac­ter­i­za­tion of Europe as a safe haven. The Com­mis­sion recent­ly adopt­ed pro­pos­als [17] (that need to be rat­i­fied this year) that many see [18] as falling short of promis­ing true net neu­tral­i­ty.

Specif­i­cal­ly:

“Providers of con­tent, appli­ca­tions and ser­vices and providers of elec­tron­ic com­mu­ni­ca­tions to the pub­lic should there­fore be free to con­clude spe­cialised ser­vices agree­ments on defined lev­els of qual­i­ty of ser­vice as long as such agree­ments do not sub­stan­tial­ly impair the gen­er­al qual­i­ty of inter­net access ser­vices.”

In oth­er words, ISPs should be able to charge con­tent providers — offer­ing, say, IPTV or video­con­fer­enc­ing ser­vices — for join­ing a new fast lane, as long as the reg­u­lar inter­net doesn’t suf­fer. As net­work invest­ment would prob­a­bly grav­i­tate towards that fast lane, good luck with main­tain­ing the qual­i­ty of all the oth­er traf­fic over time.

One major point in Kroes’s favor is this: the Euro­pean broad­band scene is for the most part much more com­pet­i­tive than that in the U.S. – there are sim­ply more play­ers in most areas, mak­ing lock-in less of an issue. On top of that, anoth­er part of her tele­coms reforms would ensure that peo­ple can switch provider at no penal­ty if they think they’re not get­ting a good-enough ser­vice, so there would arguably be a good incen­tive to keep every­thing run­ning smooth­ly.

But that’s about con­sump­tion. On the sup­ply side, there’s still a good deal of scope in there for repli­ca­tion of the sce­nario the U.S. now faces, with big play­ers able to out­spend the min­nows and their pesky inno­va­tion, and buy their way into “free with the pack­age” promi­nence. The dev­il is in the details, and fans of com­pe­ti­tion will be hop­ing for the lan­guage of the EU pro­pos­als to be tight­ened up before they hit the Euro­pean Par­lia­ment for a vote.

...

So it appears that the EU’s tele­com over­haul might actu­al­ly pro­tect net neu­tral­i­ty. But it also might just end up incen­tiviz­ing tele­coms to no longer upgrade their low­er-cost data-infra­struc­ture since the pro­posed rules would only pre­vent com­pa­nies from offer­ing ser­vice pack­ages that would “sub­stan­tial­ly impair the gen­er­al qual­i­ty of inter­net access ser­vices”. Upgrad­ing and main­tain­ing the “gen­er­al qual­i­ty of inter­net access ser­vices” does­n’t appear to be a focus of the pro­posed leg­is­la­tion.

Net Neu­tral­i­ty or Busi­ness as Usu­al?
Still, as the above arti­cle points out, due to the high­ly frag­ment­ed EU tele­com mar­ket — where no EU-wide oli­gop­oly exists — mar­ket com­pe­ti­tion alone might enforce some degree of net neu­tral­i­ty even if the trou­bling loop­holes per­sist. Hope springs eter­nal! Unfor­tu­nate­ly, large play­ers in the EU tele­com mar­ket are already lob­by­ing for exact­ly that kind of large scale con­sol­i­da­tion. Large play­ers with hopes and dreams of their own. Large play­ers like Deutsche Telekom [19]:

Bloomberg Busi­ness­week
Europe’s Tech Lag and A Leg Up From Snow­den
By Diane Brady Jan­u­ary 20, 2014

Deutsche Telekom’s new CEO and the man behind Angry Birds seem to agree on one thing: the scan­dal over U.S. spy­ing on allies could come at a cost to U.S. com­pa­nies. At the open­ing ses­sion of Munich’s DLD Con­fer­ence on Jan. 19, Rovio chief Peter Vester­bac­ka called it “the best mar­ket­ing cam­paign for Euro­pean com­pa­nies ever,” forc­ing busi­ness lead­ers to think twice about stor­ing sen­si­tive data in the U.S. For Tim­o­theus Höttges, who took over the top job at Deutsche Telekom a few weeks ago, the key is how they rebuild trust.

The depth of feel­ing around the issue sig­nals that Pres­i­dent Obama’s promise to rein in the Nation­al Secu­ri­ty Agency’s reach [20] may not be suf­fi­cient to address allies’ con­cerns. As Paul-Bern­hard Kallen, a fel­low pan­elist and CEO of Hubert Bur­da Media, put it: “Every­body has been blam­ing Chi­na. What is now appar­ent is that it’s not the old friends who are the real friends.” Kallen, whose media com­pa­ny hosts the pre-Davos gath­er­ing, was also joined onstage by Lutz Schüler of Ger­man cable oper­a­tor Uni­ty­media Kabel.

Togeth­er, the four men debat­ed what it would take to accel­er­ate com­pe­ti­tion in the frag­ment­ed and high­ly reg­u­lat­ed Euro­pean mar­ket. Tele­com chief Höttges argued the first step is to ease up on rules, argu­ing that “we’re reg­u­lat­ed on what­ev­er we do.” Sec­ond, he wants an envi­ron­ment that allows him to charge suf­fi­cient rev­enues to make a prof­it. While U.S. and Euro­pean data traf­fic have both jumped 900 per­cent over the past five years, he said, that’s enabled U.S. tele­coms to grow annu­al rev­enues by rough­ly 35 per­cent while Euro­pean car­ri­ers’ have seen sales drop. The com­par­i­son with Asia is sim­i­lar. “There seems to be a dig­i­tal divide between Europe and the rest of the world,” said Höttges. With more than 200 car­ri­ers in Europe, vs. four in mar­kets like the U.S. or Chi­na, that may not be a sur­prise.

One of the biggest issues for the Euro­pean lead­ers was pref­er­en­tial treat­ment of for­eign play­ers. Unitymedia’s Schüler com­plained that Ger­many gave Net­flix access but struck down efforts to cre­ate a home­grown ver­sion through a part­ner­ship with ProSieben and RTL. “The change which has to hap­pen is dereg­u­la­tion,” he said. “There’s no dig­i­tal brand com­ing out of Ger­many …To the Googles of this world, Deutsche Telekom is a dwarf. We all need scale.”

Kallen agreed, talk­ing about the need for a lev­el play­ing field. A web­site that oper­ates out of Lux­em­bourg, for exam­ple, can sell e‑books into Ger­many at a neg­li­gi­ble rate while a local pro­duc­er has to charge a 19 per­cent sales tax. “My biggest con­cern is that the reg­u­la­to­ry envi­ron­ment isn’t fair to all the com­peti­tors,” he said.

...

Note that when Deutsche Telekom’s CEO says he wants “an envi­ron­ment that allows him to charge suf­fi­cient rev­enues to make a prof­it,” what he’s say­ing is “I want to [21] get rid of [22] net neu­tral­i­ty [23]”.

Also note that when Deutsche Telekom’s CEO declares, “to the Googles of this world, Deutsche Telekom is a dwarf. We all need scale,” what he’s say­ing is the EU’s tele­com mar­ket needs to con­sol­i­date into an oli­gop­oly [24] with Deutsche Telekom near the top [25]. And based on cur­rent indus­try trends, mas­sive con­sol­i­da­tion of the EU tele­com sec­tor into an oli­gop­oly is prob­a­bly what we should expect [26]:

The Wall Street Jour­nal
Europe Awaits Wave of Tele­com Con­sol­i­da­tion
Com­pa­nies, Bankers Eye Takeover Tar­gets; Tele­fóni­ca-KPN Deal a Lit­mus Test for EU

By Sam Schech­n­er and Eyk Hen­ning

July 28, 2013 9:37 p.m. ET

A ris­ing tide of deal mak­ing in Europe’s trou­bled tele­com sec­tor is spurring more com­pa­nies to dip their toes in the water, rais­ing hopes for a long-await­ed wave of con­sol­i­da­tion.

With Tele­fóni­ca SA’s agree­ment last week to buy the Ger­man mobile-phone unit of Dutch tele­com com­pa­ny Roy­al KPN NV in a deal worth €8.1 bil­lion ($10.6 bil­lion), the val­ue of Euro­pean merg­ers and acqui­si­tions in the tele­com sec­tor has hit a more than decade­long high. This comes on the back of cheap financ­ing, pos­si­ble reg­u­la­to­ry changes and exec­u­tives’ fear of being left behind.

Now, with the Ger­man mobile deal rep­re­sent­ing a key test of Euro­pean Union will­ing­ness to green light deals that reduce the num­ber of play­ers in a giv­en coun­try, bankers and telecom­mu­ni­ca­tions exec­u­tives say they are already look­ing at oth­er pos­si­ble takeover tar­gets.

“I think we are in the begin­ning of this process, of this cycle,” said Stéphane Richard, chief exec­u­tive of France’s Orange, on a con­fer­ence call to dis­cuss the com­pa­ny’s first-half results. “As far as Orange is con­cerned, we are pre­pared to play the max­i­mum role in this con­sol­i­da­tion move if it real­ly hap­pens.”

The fall­out could even­tu­al­ly be a deep—and exec­u­tives say overdue—shakeout in Europe’s patch­work tele­com indus­try. Across the EU, well over a hun­dred mobile and fixed oper­a­tors in 28 coun­tries are owned by over 40 major groups. That com­pares with just four big mobile oper­a­tors, and an increas­ing­ly con­sol­i­dat­ed cable busi­ness in the U.S.

...

Mar­ket con­di­tions are mak­ing con­sol­i­da­tion eas­i­er. Frag­men­ta­tion and com­pe­ti­tion have pushed down prof­its and share prices. Shares in Euro­pean tele­com com­pa­nies in the Stoxx 600 index have fall­en by more than 74% since Feb­ru­ary 2000. In that time the broad­er Stoxx 600 index has declined by only 22%.

Antitrust pol­i­cy at the EU’s exec­u­tive arm, the Euro­pean Com­mis­sion, and with­in some Euro­pean coun­tries has been an obsta­cle to in-coun­try con­sol­i­da­tion. In France, for instance, a fourth mobile oper­a­tor launched just last year, and the head of the coun­try’s antitrust watch­dog made clear in March that he would block any deal that reduced the num­ber of actors.

But that may be start­ing to change else­where. Last year, Brus­sels approved the takeover of an oper­a­tor in Aus­tria, bring­ing the mar­ket from four oper­a­tors to three—albeit with hefty con­di­tions.

Now anoth­er EU com­mis­sion­er, Neel­ie Kroes, is propos­ing new con­ti­nen­twide rules for the tele­com sec­tor that are aimed in part at encour­ag­ing cross-bor­der com­pe­ti­tion. The pro­pos­al, which is still being dis­cussed, “should sup­port the case for con­sol­i­da­tion,” ana­lysts from HSBC said in a recent note.

Tele­fóni­ca’s Ger­man deal would pro­vide per­haps the biggest test yet of the new wave. “If this deal goes ahead and gets val­i­dat­ed by Brus­sels, you give the green light to four-to-three deals in oth­er coun­tries,” said Fred­er­ic Boulan, a telecom­mu­ni­ca­tions ana­lyst at Nomu­ra Inter­na­tion­al PLC.

“We have too many play­ers in Europe,” Tele­fóni­ca Chief Oper­at­ing Offi­cer José María Alvarez-Pal­lete said last week on a con­fer­ence call to dis­cuss results. “Con­sol­i­da­tion is going to hap­pen.”

...

Snow­den Affair or Busi­ness As Usu­al?
We’ll clear­ly have to wait and see [27] how much con­sol­i­da­tion is in store for the EU tele­com, but it’s obvi­ous that the EU tele­com mar­ket is fac­ing some major changes in com­ing years. Some of those changes will no doubt have been cat­alyzed by the Snow­den affair. But, busi­ness being what it is, a lot of those changes will also be dri­ven by busi­ness as usu­al [28]:

Bloomberg
NSA Scan­dal May Help Build Cyber-Bar­ri­ers
By Susan Craw­ford Dec 27, 2013 8:00 AM CT

The smooth flow of online com­mu­ni­ca­tion and com­merce between Europe and the U.S. is at risk of inter­rup­tion, thanks in part to naked oppor­tunism on the part of Euro­pean telecom­mu­ni­ca­tions giants. If the gov­ern­ments involved fail to keep online bar­ri­ers between the con­ti­nents low, the Internet’s poten­tial to be an engine of glob­al eco­nom­ic growth will be con­strained.

Take Deutsche Telekom AG (DTE) (DTE), the largest provider of high-speed Inter­net access and wire­less ser­vices in Ger­many and the largest telecom­mu­ni­ca­tions orga­ni­za­tion in the Euro­pean Union. To expand, the com­pa­ny will have to acquire [29] addi­tion­al com­mu­ni­ca­tions com­pa­nies; in order to do so, it hopes to free itself from the Ger­man government’s 32 per­cent own­er­ship [30] in the com­pa­ny. It has also expressed a desire to diver­si­fy into non-telecom­mu­ni­ca­tions lines of busi­ness, such as tech­ni­cal-ser­vices deliv­ery.

The snoop­ing scan­dal at the U.S. Nation­al Secu­ri­ty Agency may help Deutsche Telekom achieve both these goals. T‑Systems Inter­na­tion­al GmbH, the company’s 29,000-employee-strong dis­tri­b­u­tion arm for infor­ma­tion-tech­nol­o­gy solu­tions, has been los­ing mon­ey sell­ing sys­tems-inte­gra­tion and data-pro­cess­ing ser­vices. Now, in response to cus­tomers’ loss of trust in Amer­i­can ser­vices, Rein­hard Clemens, T‑Systems’ chief exec­u­tive offi­cer, says he wants to refo­cus [31] the com­pa­ny on pro­vid­ing cloud ser­vices.

Deutsche Telekom has also pro­posed to help Europe avoid NSA sur­veil­lance by cre­at­ing “Schen­gen area rout­ing,” a net­work for the 26 Euro­pean coun­tries that have agreed to remove pass­port con­trols at their bor­ders. This net­work would sup­pos­ed­ly allow these nations to secure­ly exchange data among them­selves. Con­ve­nient­ly, the Schen­gen area does not include the U.K., which is now known to be close­ly coop­er­at­ing with the NSA.

Deutsche Telekom undoubt­ed­ly thinks that it will be able to col­lect fees from net­work oper­a­tors in oth­er coun­tries that want their cus­tomers’ data to reach Deutsche Telekom’s cus­tomers — and that the com­pa­ny has the mar­ket pow­er to raise those tolls ever high­er. As things stand, net­works already try to avoid Deutsche Telekom’s wires when rout­ing Inter­net traf­fic to Ger­man cus­tomers because the com­pa­ny refus­es to swap traf­fic on a no-pay­ment basis — the com­mon prac­tice [32] of com­pet­i­tive car­ri­ers around the world.

With hun­dreds of lob­by­ists in Berlin, Deutsche Telekom can see to it that if any Ger­man leg­is­la­tor is asked what to do about the NSA prob­lem, he or she will respond with “Secure rout­ing of traf­fic.” Sure­ly this secure Schen­gen area rout­ing would be even smoother if Deutsche Telekom owned more of the telecom­mu­ni­ca­tions oper­a­tors involved.

Mean­while, Euro­pean tele­com reg­u­la­tors, anx­ious to help Euro­pean com­pa­nies avoid the risk of being bought up by Ver­i­zon Com­mu­ni­ca­tions Inc., AT&T Inc. or Car­los Slim, the Mex­i­can wire­less monop­o­list, are encour­ag­ing con­sol­i­da­tion [33] — with Deutsche Telekom’s full sup­port. “Now is the right time” for con­sol­i­da­tion, Deutsche Telekom Chief Exec­u­tive Offi­cer Rene Ober­mann said in Novem­ber.

Reg­u­la­tors are being told by the telecom­mu­ni­ca­tions incum­bents that Euro­pean com­mu­ni­ca­tions will be more secure when few­er oper­a­tors can work togeth­er to raise elec­tron­ic bar­ri­ers at the bor­ders.

...

The more things change the more they stay the same [34] it seems. Still, changes of some sort [35] appear to be on the way for the inter­net as we know it and it remains [36] very unclear what shape the tele­com over­haul will final­ly take this year [37]. So stay tuned EU inter­net users! Although it might take years of indus­try con­sol­i­da­tion [38] to dis­cov­er the real fate of net neu­tral­i­ty in the EU so you may not want to stayed tuned via online stream­ing ser­vices. That [39] could [18] get expen­sive [40].