Net neutrality - the concept that all broadband services should receive equal priority on last miles - is under attack from major cable and telco operators. Dugie Standeford investigates regulatory attitudes

Traffic priority?

Network neutrality issues can be framed in several different ways. In the United States, the debate centres on whether telecom and cable operators should be allowed to prioritise traffic and to charge Internet companies for transmitting content over those networks. Key differences between the US and EU regulatory climates may make the issue less urgent for European providers, but industry and regulatory observers are monitoring the debate. “As a concept, net neutrality is relatively new in Europe,” says Axel Spies, a German telecom lawyer at Bingham McCutchen in Washington, DC. Europeans believe the concept of ‘technological neutrality’ enshrined in the regulatory framework protects against discrimination, so there is no need for net neutrality rules. “But is that true, or does technological neutrality simply mean that voice and data traffic must be treated equally?”

Equal access

It is unclear whether the European notion of technology neutrality really prevents an incumbent from offering different service quality levels (better speed, more bandwidth) to ISP or end-user customers willing to pay more for it. Spies explains that this is one significant part of what US incumbents have suggested (and which the industry has challenged under the flag of ‘net neutrality’). Opponents suggest everyone should get equal access, but with so many flavours of net neutrality, it is difficult to determine what falls under the concept and what does not. Differences in the EU and US regulatory environments make neutrality a less urgent issue in Europe. EU rules require incumbents to unbundle local-loops so rivals can use them to offer DSL services, notes Martin Olausson, senior analyst for broadband media and communications at Strategy Analytics. Under EU law, local loop unbundling and other wholesale broadband markets are subject to both pre-emptive and antitrust rules, adds UK Office of Communications (Ofcom) chief policy partner Kip Meek, who currently heads the European telecom regulators group. EU regulatory policy is committed to a level playing field. He explains that national regulators have the tools they need to intervene in infrastructure markets.

By contrast, competition in the US is facilities-based, according to Olausson. There, the battle is waged by cable operators and telcos, leaving Internet companies like Google no platform for offering unbundled services.

Net neutrality thus becomes more important for players in the US than in the EU, Olausson says. Net neutrality could become a concern in Europe in the context of VDSL (very high-speed DSL) networks, he points out, as Deutsche Telekom, Telecom Italia, BT and France Telecom are building next-generation broadband networks. DT, controversially, wants several years of “regulatory moratorium” to relieve it of the obligation to provide access to competitors. If DT’s request is granted - and an amendment to Germany’s telecom law that would allow such a derogation from the EU framework is currently under consideration - the lack of access could affect IPTV and other new offerings, Olausson explains.

He believes that for download-only services, neutrality is not an issue. So long as download time and picture quality are reasonably good, and users are not blocked, access providers need not offer the same Quality of Service necessary for live TV, meaning there is no need to make increased demands on the network. British Telecom was recently reported as saying it is satisfied with current regulatory arrangements in the UK but that this view could change. A BT spokesperson notes that the UK market and regulatory regime differ somewhat from Germany and Italy’s, and that, while it now sees no reason to change the rules, it could sometime in the future.

“Genuinely competitive markets like the one in the UK address many of the issues that the net neutrality debate is raising,” the BT spokesman says. To enable competition and innovation, “all network owners should allow any company to have their services carried on fair and equal terms, including their own respective downstream businesses”. BT adds that this also applies to IPTV. Under a settlement agreement with Ofcom, BT is required to provide equivalent access to rivals.

At the European Union, a spokesman for the Information Society & Media Directorate-General comments: “The European Commission is well aware of the so-called ‘net neutrality’ debate in the US and is following it with great interest,” confirming that “some telecom operators have mentioned this issue to the (European) Commission in bilateral meetings” but no “concrete request for regulatory intervention” has been forthcoming.

Nor has network neutrality been raised as a regulatory issue in the context of the review of the EU telecom regulatory framework. “But we keep an open mind,” the spokesman adds, saying the relationship between network operators, ISPs and content providers is a business decision and a question of adapting business models. The spokesman notes that the European Commission would only intervene in cases of clear market failures or in cases of competition problems - neither of which has been reported. Olausson predicts the Commission will eventually offer an exemption from competition law for new networks such as wireless, but not for more advanced DSL services.