Net Neutrality: The Mobile Story

  • Wednesday, October 29th, 2014
  • Author: Tim Maytom
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This article originally appeared in the November edition of our quarterly magazine. To get the full experience, you can read the issue online here, or subscribe to receive a physical copy here.

Net Neutrality

In the past few months, the debate about net neutrality has grown louder as authorities on both sides of the Atlantic prepare to decide on exactly how ‘free’ the internet should be, with individuals and corporations both voicing their opinions on the matter. But, while the public in the EU and US seem to support protecting fair and open access to internet, the two legislatures seem to be headed in opposite directions.

In the US, the Federal Communications Commission (FCC) is considering legislation that could do away with existing net neutrality protections and cement the right for Internet Service Providers (ISPs) to create a ‘two lane’ system. Companies could start paying fees to secure faster speeds and more reliable connections, essentially having their data prioritised over others’.

Critics of the FCC’s proposals have warned this could hurt or even kill competition in certain online services, with startups unable to compete with larger companies that can afford to pay. Net neutrality advocates also argue that enabling big companies to pay for a better connection reduces the incentive to provide a good service for everyone else, especially as competition between ISPs is already sluggish.

The European Commission (EC), meanwhile, in conjunction with the Body of European Regulators for Electronic Communications (BEREC) has repeatedly affirmed its commitment to maintaining net neutrality. In September 2013, the European Council adopted the Connected Continent legislative package, which aimed to bring the telecoms sector “fully into the internet age” by amending several existing regulations and also including significant provisions for protecting net neutrality.

It has been approved by the European Parliament’s Committee on the Internal Market and Consumer Rights, but EU member states will continue to review it, with final agreement unlikely to be reached until the end of the year.

The mobile question
While this transatlantic debate rages, one topic is conspicuously absent – the issue of internet services that are delivered over mobile networks, whether via mobile web or apps. Figures from the UN’s International Telecommunications Union show that in 2014, 2.3bn people will access the internet on a mobile phone, compared to just over 700m using home broadband. Even data-heavy services like streaming video and cloud storage are increasingly accessed using smartphones and tablets. So, if mobile is already the dominant way to access the internet worldwide, why is it absent from the majority of net neutrality conversations? And will the same rules that lawmakers are seeking to apply to home broadband work in the mobile world?

Looking at the legislation that’s being offered, this doesn’t appear to be the case. The FCC’s proposal firmly draws a line between ‘fixed’ and ‘mobile’ internet access, stating that while “the transparency rule applies equally”, any other aspects of the original net neutrality laws don’t. And in the US, the mobile web has already lost the protections that people continue to fight for fixed broadband to keep – in fact, it never had them in the first place.

In the EU, Vesa Terävä, head of unit for the European Commission’s Implementation of Regulatory Framework, explains that “the proposed rules related to net neutrality included in the Connected Continent proposal are technologically neutral, i.e. they would apply both to fixed and mobile networks.” But even before the final text of the provisions is decided, the reality looks a lot more complicated as the levels of competition across EU markets vary greatly.

“There are some EU countries where all mobile operators block VoIP on smartphone data plans,” says Pal Zarandy, co-founder and senior partner at Rewheel, a management consultancy firm specialising in procompetitive telecom strategy. “Depending on the competitiveness of the market, the same telecom group in some countries blocks VoIP, while in genuinely competitive markets it doesn’t, since customers would more than likely turn to a competitor.”

Apps like Skype and WhatsApp take traffic and money away from operators’ own services and so they are routinely blocked in many markets. Skype accounted for 34 per cent of the world’s long distance calls in 2012, according to TeleGeography, costing operators around $100m (£60m) a day in lost revenues. Informa believes that income from SMS will fall 20 per cent by 2018.

The European Commission’s package includes a provision for banning operators from blocking these ‘over-the-top’ (OTT) services, meaning that even in markets where they hold a monopoly, customers should be free to access them – which is a considerable victory for net neutrality. But, while blocking may soon be outlawed, the EC appears to be turning a blind eye to a much more subtle tactic.

Zero rating
As use of data-heavy services grows, you could be forgiven for thinking that telcos are reaping the rewards from data plans to support this. But the price of data for consumers has fallen dramatically, driven by improvements in technology and competition between networks. So operators are looking elsewhere for ways to benefit from this growth.

One of those is ‘zero rating’, which sees networks exempting certain services from counting towards a user’s data consumption. Usually, these are the operator’s own apps, for things like streaming or storage, although other companies can make deals to zero rate their services in return for cash. In 2010, Facebook launched a text-only, zero-rated version of its service in 50 countries, 75 per cent of which were emerging markets, after making deals with operators like 3, Wind Mobile and SFR.

Giving free access to their own apps and those of their partners, while charging for rivals’ services, already hurts competition, but it doesn’t end there. Operators are also starting to set lower usage caps for data and charging more for incremental gigabyte consumption. “A 500MB monthly cap – which is typical for mainstream, ARPU-priced smartphone tariff plans in EU markets that lack genuine competition – effectively throttles the usage of any non-zero-rated services,” says Zarandy.

Zero rating is already widespread and some believe it’s not just being ignored by legislators, but tacitly supported. The European Commission “seems to be regarding mobile operators as the primary guardians of Europe’s digital economy against the dominance of US internet giants like Google, Amazon and Apple,” Zarandy explains. “As far as we can tell, their master plan for taming Google et al is based on taming open mobile internet access in Europe and selectively giving special usage quotas for the friendly, European apps.

“This will completely kill the open mobile internet as we know it. In fact, it will also pretty much kill digital innovation in Europe.” Unchecked zero rating isn’t just about expensive phone bills, but the erosion of choice and competition by networks and software providers, with government support.

Zero rating means that businesses will have to plan much more carefully for how both content and advertising are delivered, with greater risk of wasted ad spend as the internet is increasingly curated by networks and big firms. Those providing data-rich content like video, storage and games, that aren’t prepared to pay to zero rate face a drastically reduced audience as users simply cannot afford the data these apps require.

In light of this, Chile’s telecommunications regulator, the Subsecretaria de Telecomunicaciones, recently banned zero rating services, declaring that it runs contrary to the net neutrality laws they have in place, and clearly constitutes network operators showing preference to data from certain sources over others.

End of competition?
Some in the industry actually argue that, as new, disruptive technologies chip away at operators’ business, zero rating is necessary to keep them alive. Supporters say that zero rating is no different to TV shows or content in magazines being sponsored. When AT&T unveiled its Sponsored Data program, allowing companies to purchase zero-rated services, the operator compared it to toll-free phone numbers or free shipping.

“Net neutrality threatens business models where mobile marketers can add value,” argues Roslyn Layton, VP of digital strategy for telecoms strategist Strand Consult. “Angry Birds makes exclusive deals with handset manufacturers to preload certain versions on specific devices. If handset makers and applications can differentiate with an exclusive partnership, it’s hard to justify why a telecom operator should be denied the opportunity to do the same.”

Enabling new networks to offer something unique to compete in the marketplace seems reasonable. But as Sprint and T-Mobile draw closer to a US merger, and with Telefónica and E-Plus joining forces in Germany, it’s clear that the big telcos are being allowed to get bigger and therefore more protected against challengers. With such powerhouses in place, it seems unlikely that zero rating will end up helping any other providers.

While download speeds are faster than ever on mobile, with many mobile plans outstripping fixed broadband in terms of speed, mobile internet remains exorbitantly expensive in many countries when looking at price per gigabyte. Rewheel’s Digital Fuel Monitor, which studies mobile plans across the EU, found that in countries with a high amount of competition where there was no dominant carrier, like the UK or Finland, prices were substantially lower.

Critics of net neutrality say that by robbing smaller operators of the opportunity to differentiate themselves through marketing tools like zero rating, they are hindering the very competition they are trying to encourage. But as more and more deals and mergers occur, encouraged by politicians like Angela Merkel, consumers face the creation of a cartel of operators that artificially maintain high prices, supported by zero rating deals with different service providers.

The truth about net neutrality is that while it may look like an issue of freedom of speech and censorship, really it’s all about competition, and that’s especially true for a dynamic industry like mobile. Government legislation may try to enshrine certain protections in law, but without a competitive market to motivate them, network operators will undoubtedly find ways around these rules. In an aggressive market, consumers will flock to operators who offer data without restrictions on what they can access, but as markets in the United States and parts of Europe edge towards operator monopolies, consumers are left with slower, more constricted plans while networks sell off chunks of bandwidth to the highest bidder.

The idea of the ‘two-lane internet’ raised in many discussions isn’t the ultimate spectre that net neutrality is trying to banish; it’s the elimination of real choice when it comes to who provides us with our connection to the digital world.