Out-Law Analysis 6 min. read

How net neutrality debate could affect internet of things and telecoms investment

FOCUS: 'Net neutrality' rules are set to be applied to communications to and from connected cars and other 'internet of things' devices amidst telecoms regulators' growing appetite to regulate the way the flow of internet-based traffic is controlled in the EU.

New EU legislation on net neutrality is near to being finalised, but experiences from the Netherlands shows how rules on the issue can be broadly applied.

We can expect some national telecoms regulators to interpret the new net neutrality rules widely, in recognition of the increasing connectivity of devices. However, a divergent approach to regulation and enforcement across the EU would cause confusion and uncertainty for businesses that do not operate in accordance with national borders in the internet age.

Net neutrality

Net neutrality is the principle that internet service providers (ISPs) will deliver all content requested by customers equally, and where the speed and quality of content delivered to customers is not dictated by the price content producers are willing to pay ISPs for preferential treatment of their over the ISPs' network.

With the growing connectivity of devices and innovation in internet-based communication and content services, from the rise of voice over IP services like Skype to the growth of Netflix and WhatsApp, there has been a push by policy makers to regulate more tightly the way that service providers control the traffic over their network.

In February new net neutrality rules were introduced in the US. The rules generally prevent ISPs from blocking or throttling internet traffic over their network and from giving priority treatment to to particular content traffic over others as part of any paid arrangement with content providers. However, the rules enable ISPs to engage in reasonable network management, such as to control traffic at times of busy use.

The legal framework in the EU

Existing EU laws do not expressly require ISPs to observe the principle of net neutrality. However, the current legislation does have an impact on how ISPs provide services to consumers.

National telecoms regulations have a duty to promote internet users' ability to access and distribute information or run applications and services of their choice, and this is reflected in the way they regulate their market.

The current legislation also requires ISPs to notify consumers about any limitations they could place on their access to internet services as well as the procedures they use to assess and control the traffic flowing over the network to avoid overloading that network. ISPs must also explain to their customers how those traffic management measures could impact on the quality of service they deliver. National regulators have the power to set minimum quality of service levels if they are unsatisfied with the way ISPs are controlling their network traffic.

Reforms on the agenda

In 2013 the European Commission published plans to establish a single net neutrality framework in the EU for the first time. Those plans have subsequently been heavily debated by EU law makers and are still the subject of negotiation. The focus has been on what traffic management measures are reasonable for ISPs to carry out and whether ISPs should be able to enter into commercial contracts with content providers or consumers to guarantee higher levels of quality of service than the ISP would provide under a basic internet connection package.

However, as leaked plans being considered by EU governments show, the concept of net neutrality is under threat. Its very definition has been removed from the latest EU proposals those governments are considering. Digital rights campaigners in France have raised concern about whether consumers' rights would be respected under the proposed traffic management rules contained in those plans. La Quadrature du Net said it is also opposed to allowing ISPs to agree deals with consumers in relation to "price, data volumes or speed" of internet services as it said this could undermine the principle of net neutrality.

Net neutrality in the Netherlands

Dutch telecoms laws were amended in 2012 to expressly require net neutrality to be maintained by ISPs.

The Telecommunications Act prevents ISPs preventing or slowing internet traffic over their networks unless it is necessary, and applied in a non-discriminatory way, to avoid congestion, or it is necessary to protect network or device integrity or security, to address the communication of spam or malicious software, or where it is required to do so by a court.

The law also prevents ISPs in the Netherlands charging consumers different prices for access to the internet depending on the kind of services or content they are accessing. The law applies to both fixed and mobile internet services.

The Dutch government moved to write net neutrality requirements into law after KPN, a major internet provider in the country, announced plans to charge subscribers more to use rival over-the-top internet-based communications services like Skype and WhatsApp in response to falling revenues it was seeing from the SMS market.

Since the law has been introduced a number of legal cases have involved the enforcement of the net neutrality rules.

In one case the Dutch telecom regulator assessed net neutrality in the context of free public Wi-Fi communications after T-Mobile blocked train users from accessing some internet content to address network congestion. The regulator said T-Mobile's actions were legitimate and that it had applied its traffic management in a non-discriminatory fashion.

However, in another case KPN was fined €250,000 after it offered public Wi-Fi users the chance to access two internet access packages - one that allowed users to access VoIP, Bittorrent and other data-heavy services, and one that did not and which was aimed at more limited internet use.

Vodafone has also been fined under the net neutrality regime in the Netherlands. It was fined €200,000 after offering free access to a specific app to new customers. The fine was levied after the regulator determined that a different price was being applied to customers' internet access based on the application and content they were accessing.

Last month, the Dutch government confirmed that where ISPs offer customers an internet package, such as general internet access and access to a particular application, the net neutrality rules will be applied to the combined offer.

Other national regulators will take a stance

There is appetite from other telecoms regulators in the EU to protect net neutrality too. In Italy, the regulator wants net neutrality to apply to devices as it seeks to promote new machine-to-machine connectivity.

This would have implications for car manufacturers working on the 'connected cars' of the future, among others. It could, for example, prevent or restrict them from entering into agreements with content providers over priority delivery of their content to car users as part of innovative new 'infotainment' services being built into connected cars.

Net neutrality is also one of the hottest topics in France. Fleur Pellerin, the French cultural minister wants to level the playing field. She has said that the next step would be to introduce a new tax on the use of bandwidth.

Arcep, the French telecom regulator, has also been officially asked to make recommendations, including around the use of deep packet inspection (DPI). There is significant debate around whether ISPs should be able to use DPI techniques to monitor and manage traffic over their networks.

La Quadrature du Net, an industry association in favour of net neutrality, is more than preoccupied too and is engaging in further lobbying activities in Brussels. The trilogue on 2 June has just confirmed that roaming and net neutrality are sensitive topic and further talks are scheduled.

Net neutrality and financing telecoms investment

The difficulty for regulators in applying net neutrality principles is that it comes at a time when telecoms operators in general are being asked to fund major improvements to telecoms infrastructure, despite their market, and revenues, being eaten into by rival communications providers.

Efforts being made to drive down the roaming charges telecoms operators can charge consumers for accessing internet services when abroad also put their existing revenue streams under threat.

The telecoms companies argue that if they are to build the infrastructure necessary to support the European Commission's ambitions for the EU digital economy then there must be equal treatment in the way they are regulated compared with internet-based communication service providers like Skype and WhatsApp. In addition, they argue that the content producers that would benefit from investment in telecoms infrastructure should not get a free ride over their networks. They argue that content providers should have to pay for their content to be delivered to internet users.

The debate will be shaped by the forthcoming EU rules on net neutrality, as well as other planned efforts to modernise EU telecoms laws, but the biggest impact could be felt through the actions of the regulators if the net neutrality concept is broadened to encompass the internet of things.

Diane Mullenex is a telecoms expert at Pinsent Masons, the law firm behind Out-Law.com

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