Research Notes

Net neutrality: Telecom operators, act now or be left on the platform when the EU net neutrality train leaves the station August 18

Many talk about net neutrality in the European Union but few understand the consequences for industry, innovation and consumers. The deadline for input to the EU’s net neutrality rules is August 18, just at the launch of the Italian presidency. Net neutrality, if imposed in Europe, will be a paradigm shift and have an drastic impact on the already ailing telecom industry in Europe.

Strand Consult has studied the net neutrality issue in depth over the past few years and has produced a report “Understanding net neutrality and stakeholders’ arguments” to help operators understand the various stakeholders and interests supporting the debate.

Today’s telecommunication market is all about who can deliver the most traffic as cheaply as possible. Net neutrality rules, if enacted, would make it even more difficult for operators in Europe to differentiate on the value of their services. The EU is in the process of introducing rules which in practice mean that if you sell services to customers, it is not an advantage to invest, build, own or operate a communications network. You are subject to more rigid control than those that offer the same services without owning a network.

EU leaders, pandering to the lowest common denominator of populism and suffering a lack of knowledge about the telecom industry, have designed rules that will inhibit network investment and likely kill innovation. Some Americans have observed with a little mirth that the EU’s missteps in telecom policy and the digital single market have benefitted of the US. Capital that would have gone to European infrastructure goes outside the EU, frequently to the US or other parts of the world where it can get a better return.

The EU net neutrality rules impose further obligations on national regulatory authorities to create and enforce standards of traffic management that are at odds with the requirements of network engineering and the needs of Europe to stimulate its digital sector with network investment. The EU should be doing everything it can to support internet innovation and employment, but instead the proposed rules restricts who can innovate, under what conditions, and on which networks. Most distressing is that on the ruse of protecting the consumer, the EU net neutrality rules open the door to government to the surveillance of citizens under the guise of monitoring the network. This is what net neutrality rules in Latin American and Asia have done.

In its report “Understanding net neutrality and stakeholders’ arguments” Strand Consult concludes that net neutrality rules will likely further entrench the power of American internet companies in Europe. The so-called openness that these groups lobby for is in effect a subsidy for their content delivery at the expense of consumers. Net neutrality forces unwitting consumers to pay for all you can eat, one size fits all internet subscriptions instead of the packages tailored to their needs and budget.

Many European operators have not understood the process and consequences of net neutrality rules. The campaign for net neutrality is now global, is extending regulatory reach across the entire internet, and will not go away. Net neutrality advocates, supported by increasingly profitable internet companies, have visibility and legitimacy. Operators have missed a valuable operator to work with these groups and to express that their very networks allow the movement to grow.

In any case, the net neutrality movement will not end with the telecom industry. Their next target will likely be the software and network equipment companies that develop integrated platforms and solutions for operators and others. Those who have dreams of selling intelligent services will have to think again.

Operators have mistakenly siloed net neutrality as a matter for their public affairs staff without recognizing the strategic consequences across various department including engineering, product development, sales and marketing and so on. Net neutrality should be a group wide project and must certainly include the regulatory teams and investor relations. If net neutrality rules succeed in the EU, then IR telecom departments should get ready to issue profit warnings.

Operators are already behind when it comes to a dialogue on net neutrality. There are just four weeks left during which time the EU government will define the network neutrality rules that will likely have a major impact on the telecom industry.

There is one sliver of hope on net neutrality for operators, and it comes from the Nordic countries where net neutrality is managed not by laws but by multi-stakeholder dialogue. Indeed such models are used globally to manage internet governance issues and can also work with net neutrality. Indeed the Nordic approach has been the most effective and longest running regime on net neutrality. No net neutrality violations have been documented under the models in the Nordic countries, and given that there is no law, operators don’t have an incentive to litigate. Because all the stakeholders have to face each other at the table, there is a greater sustainability for the issue.

Danish operators took the initiative to develop a multi-stakeholder dialogue on net neutrality. The dialogue is run by the country’s telecom industry association and includes the Danish telecom regulator, application providers such as Google, and consumer representatives. The Danish regulator plays the role of the facilitator, not policeman. Such a model is preferable for the EU rather than law which a number of European regulators have already admitted is impossible, and indeed detrimental, to implement.

The Netherlands is an example of how net neutrality can go. A mistaken comment from an operator at a shareholder meeting launched a wave of protest by the local net neutrality organization. In just two months, the Dutch Parliament passed a law on net neutrality using the text drafted by the net neutrality organization. Operators were barred from the official discussion. Many politicians will stoop to the lowest level, even avoid legal procedure, to grandstand on self-serving legislation that sounds good, regardless if its consequnces are negative.

There is only one month left to the August 18 deadline. Telecom industry associations have not succeeded to communicate, let alone, inform the rulemaking process on net neutrality in the EU. Operators need to act fast. Strand Consult with its team of European and American regulatory, legal, and economic experts can help operators understand this issue. Order the report “Understanding net neutrality and stakeholders’ arguments” which provides an overview of the issue and what operators can do. Don’t be left on the platform when the net neutrality train has left the station on August 18.

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