Research Notes

Tesla’s bundling of zero rated Spotify with a SIM card is a violation of the EU’s net neutrality rules. Strand Consult submits complaint to two European telecom authorities.

European telecom authorities in Sweden, Netherlands, and Hungary have banned zero rated mobile services, including music streaming apps such as Spotify. American car company Telsa offers electric cars with services for music and navigation which communicate via mobile networks and embedded SIM cards. In practice Tesla is operating as an mobile virtual network operator (MVNO) and should be subject to regulation under EU and national telecom rules. Strand Consult has complained to European telecom regulators about Tesla’s violations.  

Strand Consult, one of the world’s leading knowledge centers in MNVOs and net neutrality, predicted that the net neutrality would become a nightmare of interpretation for telecom regulators. The guidelines issued by the Body of European Regulators for Electronic Communication (BEREC) were heavily debated and remain controversial. Unsurprisingly the EU law, which does not even contain the words “net neutrality” or “zero rating”, has given rise to regulatory arbitrage as well legal challenges.

For example Sweden’s Post & Telecom Authority has pronounced Telia’s free social media and music services a violation of the EU law, and Netherlands Authority for Consumers and Markets (ACM) threatened to fine T-Mobile 50,000 euros per day if it did not stop its free music program while the issue is litigated in Dutch courts Separately KPN was ordered to end its free Spotify program. Free video services have been banned in Hungary.

At the same time, zero rating is allowed, if not encouraged, in other European countries. Slovenian mobile operators have successfully sued their telecom authority for bans on zero rating, with the court ruling that net neutrality does not equate with a prohibition on pricing flexibility. The court ordered the telecom authority to remove the bans. In Belgium, Proximus’ zero rating program was deemed acceptable by the regulator.  

In point of fact zero rating and free data have been part of mobile industry for more than a decade with little to no controversy. Indeed without such pricing flexibility, the ability to offer services without charge, there would no commercial internet as we know it. However, Strand Consult objects to discriminatory regulation which is used by one industry to regulate another and which is employed be telecom regulators as means to serve discrete constituencies. Strand Consult has long maintained that there is no Open Internet if some players must conform to extreme ex ante rules while others enjoy commercial freedom under an ex post competition standard.

Based on the following facts, Strand Consult has complained to the Swedish and Dutch telecom regulators about the zero rated program of Spotify by Telsa Motors Inc

  • Beginning in December 2015, all Tesla model S electric cars ship with a SIM card and subscription to Spotify Premium. This replaces an earlier partnership with Rdio, showing that the selection of Spotify, is Tesla’s, not the driver’s, choice.
  • Analysts describe Tesla as a “smartphone on wheels” and Tesla’s CEO Elon Musk has called the car a “sophisticated computer on wheels”.  In practical terms, Tesla is a mobile virtual network operator (MVNO) that purchases SIM cards and data traffic which it then bundles with a device, in this case the Model S.
  • Tesla’s internet service and selections compete with other mobile operators’ plans which must comply with net neutrality rules.  If a person were to plug in her mobile phone into the Tesla to access Spotify, the traffic would be charged to her data subscription.
  • Tesla in offering telecommunications services bundled with a car should be subject to other requirements of mobile operators including personal data protection, privacy, and security obligations. 

Tesla’s free Spotify service will likely be an issue in Norway, the country with most Teslas per capital and where Tesla drivers are exempt from tolls when entering the state capital Oslo. The Norwegian regulator is investigating OneCall for possible zero rating violation.

Strand Consult hopes that regulators respond to its complaint.  From many regulators’ perspectives, allowing zero rating harms the openness of the Internet.  It certainly harms the openness of competition and the viability of telecom law when telecom services are allowed to be sold with differing regulations, protections, and treatment.

Going forward this issue will only become more complex with the Internet of Things and new providers of services, SIM cards and traffic. It seems that BEREC has attempted to isolate and favor new types of mobile providers from rules, but given their labyrinth of guidelines and the conflicting opinion across countries, it is likely that regulators will come under legal challenge for limiting the free flow of services across the European Union.

Notably American telecom authorities encourage zero rating and the Federal Communication Commission notes that it receives no complaints about free data from real consumers, only select activists. Given that the EU continues to fall behind the US in investment and internet innovation, the ban on pricing flexibility and partnerships seems misguided and distortionary in a converging marketplace.

Learn more about Strand Consult expertise and offerings in MVNOs and net neutrality.

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