1. 1 BEREC Approach to Net Neutrality - Competition issues Workshop on EU telecommunications regulation

2. Introduction – BEREC Work on Net Neutrality 2

3. Where do we come from? (1/2)  BEREC response to EC public consultation on net neutrality (2010):  “A literal interpretation of network neutrality […] is the principle that all electronic communication passing through a network is treated equally. That all communication is treated equally means that it is treated independent of (i) content, (ii) application, (iii) service, (iv) device, (v) sender address, and (vi) receiver address. Sender and receiver address implies that the treatment is independent of end- user and content/application/service provider.”  “There have been and will continue to be deviations from this strict principle. Some of these deviations may well be justified and in the end-user’s interest but other forms cause concern for competition and society. To assess this, NRAs will need to consider a wider set of principles and regulatory objectives.” 3

4. Where do we come from? (2/2)  BEREC internal report on net neutrality (2010): A non exhaustive list of key issues were identified as priority for BEREC’s future work – stemming from the following main questions:  1) How to ensure that competition is effective? – especially while enabling consumer choice and avoiding discrimination.  Assess the risk and impact of discrimination (for end-users, operators, CAPs)  2) How to ensure end-users are able to fully exercise their choice? – with emphasis on effective transparency, and if necessary via minimum quality requirements.  Evaluate best ways to achieve transparency (incl. monitoring of services)  Initiate the complex analysis of minimum quality requirements definition It was also deemed necessary, when analysing these issues, to consider a specific aspect of the Net neutrality debate, which corresponds to the following question: should specific features of the Internet be considered and, if so, how?  Develop a common view of what “access to the Internet” or “specialized services” consist of 4

5. The projects undertaken to date: evaluate the situation and examine the application of the revised EU legal framework  Transparency guidelines are about best ways to provide the mandatory information on traffic management practice, and thus help fostering competition and disciplining ISP through enhanced competition.  Traffic management investigation (TMI) is about knowing what is really happening in the field at present.  CEA “Competition issues & NN” is an economic analysis about which practices may cause harm to the end users, and under which conditions.  QoS Guidelines are about assessing "degradation of service" and the conditions and ways to use the new art. 22.3 USD, i.e. how to intervene when deemed necessary.  NGN “IP interconection & NN” is an overview of IP interconnection markets and economic relationships between operators in the context of Net Neutrality. 5

6. BEREC projects related to Net Neutrality 6 CEA EWG NGN EWG Competition issues related to NN IP-interconnection in the context of NN 20112012 BEREC Response Commission Consultation 2010 NN & QoS Guidelines Transparency follow-up NN & QoS Framework NN & Transparency Net Neutrality EWG Task Force Traffic Management Investigation BEREC Response Commission Letter

7. Net Neutrality agenda today 7 CEA EWG NGN EWG Competition issues related to NN IP-interconnection in the context of NN 20112012 BEREC Response Commission Consultation 2010 NN & QoS Guidelines Transparency follow-up NN & QoS Framework NN & Transparency Net Neutrality EWG Task Force Traffic Management Investigation BEREC Response Commission Letter Competition issues related to NN IP-interconnection in the context of NN NN & QoS Guidelines Traffic Management Investigation BEREC Response

8. Traffic Management Investigatio 8

9. Trafic management investigation : overview 1.Overview of practices (cf. last Plenary’s presentation)  Blocking/throttling of P2P or VoIP traffic  Other occurrences of blocking/throttling  Congestion management  Other specific types of measures 2.Quantification of practices  Number of operators applying main types of practice,  and corresponding customer base  Number of Internet access subscribers affected by operators’ practices (provisional)  Distinction between the types of enforcement (technical, contractual only)  Cross-country aggregated statistics for the most frequent practices, in order to represent the relatively contrasted situation across Europe  The submitted snapshot is complete – fine tuning of data in the coming days  This EU view supports the analysis developped in the three reports 9

10. Quantification of practices (number of operators)

11. A closer look at how restriction is enforced 03.05.2012CEA EWG / Competition issues related to Net Neutrality 11

12. Quantification of practices (operators weighted by their total number of users)

13. Quantification of practices (number of subscribers)

14. Aggregated statistics per types of national markets 24.05.201214

15. How does the situation look like?  Traffic management practices have been identified through the TM investigation  A majority of ISPs offer Internet access service with no application-specific restrictions.  But specific practices, such as blocking or throttling of peer-to-peer traffic or VoIP, may create concerns for end-users.  They occur more often in mobile networks than in the fixed network sector.  Risks? Tools? (cf. hereafter)  However, the European situation appears, with respect to Net Neutrality concerns, rather satisfactory in general.  The 3 reports help better understanding the risks and which ones may turn into concerns, and they show that existing regulatory tools, when deemed necessary, comprehensively enable NRAs to address net neutrality related concerns.  Monitoring quality of service, and if transparency measures are sufficient  Continue improving our understanding of interconnection markets and CAPs/operators relationships  Assess the most appropriate regulatory tool:  competition law, symmetric / asymmetric regulation, minimum quality of service requirements, dispute resolution…  3 criteria : effectiveness, necessity and strict proportionality 15

16. BEREC Report on competition issues related to net neutrality 16

17. Scope and objectives of the document  A contribution to the Net Neutrality debate : which practices may prove to be problematic ? under which conditions ?  Analysis of “differentiation practices” from an economical point of view  “Differentiation practices” as deviations from best effort situation (traffic management, contractual limitations)  Focus on End Users (leaving aside the analysis of interconnection markets).  Broad definition of potential effects: harm on consumers (and not only on competition) including static and dynamic efficiency. 17

18. Value chain and description of markets  End Users and Content & Application Providers (CAPs) are not physically connected although they interact in “content and application” markets.  Electronic communications services markets around Internet are complex and include several types of players, among others : -Hosting and connectivity providers (HCP) (= CAP’s ISP) -End user connectivity provider (ECP) (= End user’s ISP) 18

19. Localization of differentiation practices  Most differentiation practices take place on the retail broadband market, whose state of competition plays a key role.  Traffic management practices could also modify the current status where ECPs and CAPs do not have any commercial relationship (“no commercial relation practice”). 19

20. Ability to differentiate / discriminate and effects on end-users : a framework for analysis  Traffic management practices could take several forms and have different aims, it being difficult to judge them in absolute terms.  The analysis is focused on predominately economic practices, with room for strategic behavior.  Framework of analysis (based on incentives): 20 Significant Market Power (SMP) ? yesno Vertically integrated? yes no

21. Practices analyzed (in accordance with the “traffic management investigation” results)  VoIP :  Incentives to block VoIP : protection of existing business (vertical integration) + current retail voice and data tariff structure (cross subsidization).  Importance of retail competition to prevent foreclosure.  Peer to peer :  High potential impact on consumers’ welfare.  Vertical integration is not the standard case. Possible reasonable incentives to throttle P2P: congestion management (i.e. cost reduction).  Differentiation of services to CAPs :  Positive differentiation: some specific CAPs benefit from a better quality of delivery on the ISP’s network (e.g. managed service or higher data cap)  Negative differentiation: some specific CAPs face a lower quality of delivery (e.g. traffic throttling) 21

22. Consequences of the practices  In case of vertical integration  Blocking or degradation of competing applications or contents on the Internet could have a foreclosure rationality behind, which harms end-users by reducing current competition and future choices.  Effects are higher if the end-user’s ISP has some degree of market power.  On the other hand, these practices might not be sustainable in a transparent market with low switching costs because end-users could discipline ISPs.  Absent vertical integration  The rationality behind such practice is either cost reduction or income increase.  From a static point of view, a fair traffic management could have positive effects if the market is effectively competitive (not so clear in case of SMP).  From a dynamic point of view, this could reduce future innovation and content diversity, limiting future end-users’ choice.  Difficulty : balancing current benefits vs future costs 22

23. Lessons drawn from the assessment  Importance of market conditions and ISP characteristics in the assessment:  Vertical integration and foreclosure.  Market power of the ISP / number of ISPs performing the same practice.  Consumers’ choice / existence of alternative (unrestricted) offers.  Moving from “no commercial relation practice” to direct negotiations between ISPs and some CAPs raises several questions:  Balance of power between ISPs and CAPs varies  Effects on general welfare are complex  Risks of discrimination between CAPs  Importance that practices are non-discriminatory among content and applications providers, based upon objective criteria and proportionnate.  In other cases, the rationality could be distortion of competition.  Preference for “content and application agnostic” practices. 23

24. Role of competition and possible action of NRAs  Competition could avoid potential negative effects of differentiation practices. Some conditions are needed in retail markets:  Downstream markets effectively competitive.  Awareness of end users: transparency.  Ability to switch and avoid differentiation practices.  Caution: balance between individual valuation of content, switching cost and network effects  When retail competition is not enough to grant an adequate output for end- users, NRAs have different ways to deal with specific behaviours :  Asymmetric regulation (article 7, when SMP) (+ competition law & NCA)  Symmetric regulation (article 5)  Minimum QoS (in particular, in the non SMP environment).  Dispute resolution (depending on the legal status of CAPs). 24