Out-Law News 2 min. read

Effect of paid internet fast-lanes on competition and innovation 'unclear', finds study by EU regulators

It is not clear how competition and innovation in online services would be affected if content and application producers were allowed to pay internet service providers (ISPs) for improved quality and speed of delivery to users, a body of EU telecoms regulators has said.

A report by the Body of European Regulators for Electronic Communications (BEREC) on its study into how consumers value 'net neutrality' said that there could be positive or negative impacts on competition if 'specialised services' become more prevalent in the internet access market.

'Specialised services' refers to the delivery by ISPs of particular content and applications to customers at an enhanced quality, where the providers of that content or applications (CAPs) have paid ISPs for that enhanced quality.

Commercial tie-ups of this sort between ISPs and content providers are rare at the moment, but EU law makers are currently considering whether to allow such deals to be struck under new 'net neutrality' laws.

Net neutrality is the principle that ISPs treat all internet content equally when delivering it to customers.

Under plans being considered by EU law makers ISPs could deliver specialised services to consumers on the basis of paid agreements with content providers, providing their special treatment of that content does not prevent them from delivering basic internet services to other consumers.

However, digital rights groups have criticised the plans, and believe that "paid fast-lanes" online should be prohibited.

BEREC said: "An increased use of specialised services could raise market entry barriers as smaller CAPs may suffer from disadvantages if they cannot afford to buy these services. It is not currently known what future demand there will be for specialised services and what kind of future innovation could be initiated by them. However, there could be innovation based on specialised services. Another effect could be that possible future innovative internet-based services or applications are not created due to the existence of specialised services. Hence the effects of deviations from the principle of net neutrality are rather unclear."

BEREC said, though, that ISPs that block or slow down customers' access to specific applications could be endangering long-term competition and innovation online.

It said that whilst consumers generally select a broadband provider on the basis of the price of the service they are offering, some do consider the traffic management measures ISPs deploy when making their choice of provider.

BEREC's study found that consumers are more likely to choose an internet provider that does not tailor the speed and quality of service they provide to them depending on the type of applications they are trying to access.

Because of this, and providing there is transparency over the way ISPs manage traffic over their network, choice and competition in the market place, and switching providers is easy. ISPs that block rivals' content or applications to boost their own revenues are unlikely to be successful, it said.

However, its study found that there may also be a market for ISPs to provide "restricted ... packages" to internet users, if legislation permits it.

"The research suggests that, for packages with relatively low data caps, features like zero-rating – which favour specific services – are valued," BEREC said. "It therefore seems likely that some ISPs may choose to offer packages that favour individual services (e.g. Spotify) or types of service (e.g. video streaming), if permitted under national rules. Of course, an alternative would be for ISPs to offer packages with lower access speeds or lower data allowances at reduced prices, which would not raise concerns regarding net neutrality."

National regulatory authorities (NRAs) would need to closely monitor the market regardless of whether ISPs are allowed to provide "restricted services" or not, BEREC said.

"If the policy is that such restrictive services must not be available, in order to capture the broad benefits of open internet access, prescriptive regulation may be necessary," it said. "However, if policy-makers consider that sufficient benefits of open internet access will be realised through a market structure that includes some restricted services, but in which open internet access is predominant, then competition, transparency and consumer switching would likely be sufficient."

"Under all circumstances, it will be important for NRAs to monitor the nature and transparency of ISP offerings, the access services which consumers are choosing, their effects on innovation, as well as levels of competition and ease of switching – and to consider intervention if necessary," BEREC said.

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