EU Voted on Net Neutrality

The proposal recently adopted by EU parliament will not solve the big problems there are in the EU when it comes to providing citizens with access to broadband infrastructure.  Monitoring citizens on mobile is okay, but don’t touch the internet. See Strand Consult’s analysis.

In previous research notes The new EU proposals on how to harmonize the European telecommunications market has gained a lot of attention and EU Commission proposal for cheaper roaming means collapse of the European mobile industry, Strand Consult pointed out that there was a high risk that consumers would buy a SIM card in Lithuania, where traffic is cheap, and then used it in other EU countries, where traffic is more expensive. We called it “mobile arbitrage”, and we believe that it will become a lucrative speculative market for financial traders, some operators and some MVNOs, however perverse and unintended by the EU. The European Commission has listened to our criticism. As they mentioned in their recent press release, roaming will be subject to “reasonable use”. The EU Commission stipulates that consumers cannot exploit the new rules, e.g. buying a SIM card in Lithuania but using it in the UK, so as to benefit from Lithuanian prices. The EU said that usage would be monitored, and “excessive use” of this tactic would not be allowed.  The press release did not provide further specifics in how such a monitoring or enforcement regime would work.

In practice, the EU Parliament adopted a proposal where it will likely ask telecom companies to monitor their clients’ international traffic.  The EU statement reveals that the Commission has not considered the consequences. It has made a feel-good/sound good telecommunications package designed to win votes before the Parliamentary election without addressing or harmonizing the underlying conditions that creates the differentials in roaming in the first place (infrastructure costs, taxes, contract obligations etc).

The European telecommunications market has been in a decline in infrastructure investment for the last decade. European operators’ network investment, which once accounted for one-third of the world’s outlay, has plummeted to less than one-fifth.  With today’s vote, the EU has moved further away from the goal of the Digital Single Market for the Connected Continent: “Europe has to tap all sources of growth to exit the crisis, create jobs and regain its competitiveness”.

The vote will need to be approved by Council of Ministers, which is unlikely before the EU Parliamentary elections in May.  Here are Strand Consult’s observation on this troubling decision.

• The EU has created a perverse incentive for arbitrage where operators and MVNOs can exploit the differences in traffic prices from one country to another.  This goes against the idea of a digital single market.
• The EU has not defined who or how abuse of the new roaming rules will be monitored and punished.  It could be the EU, national regulators, an operator that owns the national network, an MVNO buying space on the national network, an operator receiving roaming traffic, or some other entity.
• It may be the case that operators must become policemen to their customers. Operator that sell SIM cards may be required to monitor their customers’ traffic consumption and enforce rules against abuse.
• It may be the case that operators may also be required to monitor roaming customers on their network and block for the roaming customer and enforce rules against abuse of the new roaming rules.
• The EU will also introduce network neutrality rules where operators will be forbidden to monitor the use of Skype and prevent mobile operators from blocking the use of Skype and other VOIP services.
• The EU has created a blatant hypocrisy with net neutrality and roaming. On the one hand it has expressly prohibited blocking and degradation on internet traffic with net neutrality, but it has opened the door to an new monitoring and blocking regime with roaming.
• Students who travel from one EU country to another to study for 3, 6, or 12 months will likely bring their SIM cards from home.  They will probably be the first unwitting offenders of the new EU rules.
• European business travelers who also frequent EU many countries will also likely be unwitting offenders.
• Within any company with employees with mobile phones, consumption and roaming varies significantly. It will be hard, if not impossible, to define limits of what is acceptable.
• The EU which has roundly criticised the NSA is on track to make its own surveillance regime

Strand Consult can easily add 20 additional questions. The questions will not make people smarter, but only go to show that EU telecoms package is woefully uninformed.  It is an example of desperate politicians willing to do anything—even to sacrifice their original goals–to get reelected.

The package raises more questions than it answers and exacerbates the challenges that the EU and the

EU Vice President Neelie Kroes

telecommunications industry have and will have the next four to five years.  See Strand Consult’s research note.

The conclusion is that the telecommunications market has evolved disastrously in the four years Neelie Kroes has been responsible for it. The industry’s problems will continue to deteriorate, and we believe that the telecommunications market in Europe will be somewhat similar to a free fall over the next four to five years. Operators have huge economic challenges, and it will probably trigger a digital crisis as traffic grows, and the industry holds back investment.

Europe was hit by an economic crisis that started in the financial sector. The next crisis will be digital.  The EU Parliament in its decision today has moved the EU in this dangerous direction