16 May 2022

The European Court of Justice’s (CJEU) effective ban on zero-rating on net neutrality grounds was an unexpected blow for telcos already feeling the squeeze. With digital infrastructure high on the agenda, the clock is ticking on Europe’s Digital Decade targets for 2030. Lee Sanders, Managing Partner at Aetha Consulting, considers what’s at stake for the stakeholders.

German regulator BNetzA hit the headlines this month for banning zero-rating pricing plans by two of the country’s providers, Deutsche Telekom (StreamOn) and Vodafone (Pass). The ruling, which prevents plans allowing customers to access services from specific content partners without affecting their monthly data allowance, was expected as it was the implementation of a ruling against these plans – and therefore by extension all similar zero-rating plans in the EU – by CJEU.

The backstory

In 2015 the EU established its framework to safeguard net neutrality – the well-intended principle that Internet Service Providers should treat all internet traffic in a non-discriminatory way (Open Internet Access Regulation 2015). Following this, BEREC (the Body of European Regulators for Electronic Communications representing all EU telco regulators) detailed guidelines that permitted zero-rating under certain conditions – that zero-rating traffic and non-zero-rating traffic are treated equally once a user had reached their data cap. A seemingly reasonable and pragmatic compromise between permitting creativity in data plans whilst not unduly compromising net neutrality.

However, this permission was overturned in September last year when the CJEU made a landmark and surprisingly blunt ruling against zero-rating practices by the German providers. The CJEU ruled that zero-rating content from specific providers at any time was “contrary to the regulation on open internet access” and “also incompatible with EU law”.

This ruling had wider implications than just zero-rating. It set the tone for how the EU – and specifically the CJEU – may view net neutrality in the future.

A net neutrality not competition issue

Notably, the CJEU’s ruling was on net neutrality rather than competition grounds. There are no major competition issues associated with zero-rating. Aetha, DotEcon and Oswell & Vahida explored this issue in depth on behalf of the European Commission in their report titled ‘Zero-rating practices in the broadband markets’. They concluded that “there appears to be little reason to believe that zero-rating gives rise to competition concerns”.

Meeting the cost of Europe’s Path to the Digital Decade

Competition aside, the ruling to bolster net neutrality brings added constraint to a sector currently feeling the pinch from heavily investing in 5G and fibre whilst revenues remain broadly flat. Europe is behind other parts of the world in the rollout of digital infrastructure and the European Commission’s 2021 Path to the Digital Decade strategy sets targets towards digital transformation before the end of the decade. The pressure is on – and solutions need to be found.

One recent suggestion by the telco sector is to make the tech giants contribute towards the costly upgrading of network infrastructure. According to recent research commissioned by the European Telecommunications Network Operators Association (ETNO) (Europe’s internet ecosystem: socio-economic benefits of a fairer balance between tech giants and telecom operators), most of the data traffic growth over the last decade has been driven by tech, video and social media organisations, including Netflix, Amazon and Meta (Facebook), which are responsible for 55% of all traffic on broadband networks. This data growth is estimated to cost European telcos between €15bn and €28bn each year.

The report’s suggestion for the tech giants to contribute towards these costs has apparently piqued the interest of policy makers. EU digital chief Margrethe Vestager is reported as reflecting on the issue of fair contribution to telecoms networks as one that requires much focus.

While we do not necessarily agree that the solution to meet the EU’s infrastructure targets is to tax the tech giants, it is undeniable that, in contrast to the tech giants, telcos are constrained by their regulated environment, which includes net neutrality. Such regulation, while in many cases entirely necessary, can restrain innovation and preclude creative business models – including, for example, zero-rating. This all makes hitting the EU’s targets that little bit harder.