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Why Europe threw net neutrality slacktivists under a bus

Because 'good enough' is better than... years of fighting

By Andrew Orlowski, 30 Oct 2015

Special Report The EU threw the Net Neutrality slacktivists under the bus this week, not only because it wanted to "draw a line and move on" from the thorny issue, and because it didn't find their arguments convincing. Policy makers had heard empirical evidence – based on neutrality legislation – that "soft rules" work better than "hard" regulations, and that one of the activists' bêtes noires actually benefits startups.

In the US, the neutrality wars are set to occupy lawyers and activists for years. But by achieving a broad consensus, Europe has killed it as a political issue.

"There needs to be an intellectual consensus, and Europe has found one. What it has said this week is: ‘We’ve had enough. We’re moving on’,” says Roslyn Layton, a PhD fellow at Aalborg University, who has produced one of only two empirical studies on the consequences of net neutrality regulation worldwide.

When the European Parliament voted through a slimmed-down telecoms package this week, it rejected the strict prohibitions on network management and private business agreements activists insisted were essential to "saving the internet".

Not everyone is happy. By passing any kind of EU-wide regulation, Brussels has has grabbed power from national-level regulators. Some, like Ofcom, and regulators in Japan, South Korea and the Nordics, think "hard" neutrality is highly undesirable, and not rationally justified. Many reserve the right to intervene, but do not think pre-emptive regulations are wise. In other countries, such as Slovenia and Netherlands, regulators have already introduced "hard" rules.

What has gone under-reported is a sober analysis of the neutrality regulation introduced around the world. This suggests that far from helping consumers and startups, bad legislation could achieve the opposite effect. Wait. How could this be?

First, let’s run through the context of Europe’s decision.      

Pick a Cause. Any Cause. How about 'Internet Freedom'?

Net neutrality has long been a favourite slacktivist cause, as ex-Googler Ted Dziuba explained for us seven years ago, in  a prophetic piece called “Google disguises capitalism as civil rights”. By signing up to the cause of “internet freedom” or “an open internet”, one joined a world in which the baddies and goodies were clearly distinguishable. Who isn’t for an open internet? A closed internet sounds like an oxymoron. Few people either will quibble that “edge innovation” has been a positive dynamic, while the notion that access networks have the power (in theory anyway) to pick winners is easy to grasp.

As Dziuba explained, net neutrality was a perfect candidate; it showed you were not only caring, but modern, too. You cared about the internet, dammit.    

The problem was that for the "cause" to achieve a "victory", because they didn't trust promises, codes of conduct, or post facto regulatory powers. So, at some point new, legally enforceable regulations would have to be devised, and these regulations needed to tick several boxes. To be passed, there had to be an economic justification for the rule. The new rules would need to define “harm”, then quantify it as a threshold for regulatory intervention. And the “fix” for the “harmful behaviour”, whatever that might be, had to be practically feasible. In addition, the redress had to be proportionate. Much as you can significantly lower crime by introducing an authoritarian police state, you don’t want the disadvantages to outweigh the benefits. Layton compares the infant internet we have to today to early science: it's imperative "we allow scientific experiments to be made".

This is where the rubber hit the road.

Activists are good at telling the world that they are highly virtuous people - in fact, for many, that’s the motivation of participating in a particular cause, something that's acquired the name “virtue signalling”.

But they're less comfortable in dealing with the nitty-gritty, making a credible case in physics, economics and network management practice. Hence much of the discussion about neutrality is conducted by academics lawyers, and describes a theoretical world, rather than the reality of multiplexed stochastic systems.

Over a decade, the definition of "un-neutral network practice" has shifted, and moved in different directions. Originally the concern was class-based discrimination. In 2005, the FCC moved swiftly when an ISP blocked Vonage’s VoIP service (the “Madison River”), ordering the ISP to stop. That was done and dusted, with no new laws being required. That’s often held up as a benchmark for “soft” neutrality regulation, because the regulator acted so swiftly and decisively. But for the Neutrality slacktivists, that’s never been enough. A measure of their virtue became how “hard” they could be, and this succeeded in the regulatory capture of the FCC earlier this year, which was effectively a coup.

Perhaps realising that it was their last chance, the amendments that lobbyists wanted the European Parliament to enact this week were radical. They even included a call to outlaw a practice even many net neutrality supporters don't find problematic: “zero rating”.

Zero rating is when a service and an access provider strike a deal, so that the traffic doesn't count against the consumer's data ration. Facebook, Google, Spotify and Wikipedia have all struck zero rating deals. Many neutrality supporters don’t have a problem with it, because no money changes hands. But some activists view any preferential deals not as antitrust experts might, weighing the case evidence, but assume that any and all are anti-competitive. It follows a chain of speculation: Surely if we allow no-fee zero rating, then paid deals will follow? Then, wouldn't big bucks content providers strike deals to disadvantage their competitors? Public Knowledge, an activist group that Google helps fund, has argued that once zero rating became the norm, more caps would be introduced, as the ISPs would be incentivised to seek rent.      But in reality the opposite to what the activists fear has actually happened. You won’t read this on many tech blogs, which typically parrot the activists' talking points - but you’ll be intrigued why.       

'Idiotez Populista'

Roslyn Layton and Silvia Elaluf Calderwood of the LSE decided to take a look at what happens when “hard” neutrality rules are implemented. They used real evidence. Several nations have passed hard neutrality rules, so the development of the telecomms market and the health of internet apps and services in each one could give us a useful guide. Did the customer ultimately benefit? What appeared in the evidence was striking. Net neutrality didn’t stimulate edge providers, which was its key raison d’etre, as Professor Tim Wu, who coined the phrase, had argued. “Levelling the playing field” with hard neutrality regulation didn’t encourage more services, or more diverse services. Specifically, zero rating didn’t tip the market towards a particular access provider anywhere.

Zero-rated HBO Go didn’t leap in popularity in Holland, and zero-rated TViN fell in popularity in Slovenia. Zero-rating tended to favour the incumbents. The Netherlands now has a "Netflix effect", as Netflix dominates the market. And guess who funded the "Save the Internet" lobbying this week? You've guessed it: Netflix.

“The Net Neutrality lobby will say that if you use Zero Rating you win market share. But we found the opposite. They never displace the No.1 incumbent.” Layton told us. Hard rules like outlawing Zero Rating cemented the established position of incumbents:

"My research shows that Netherlands has less edge provider innovation today than before the hard rules were put in place," Layton told us. "Things have gotten worse for edge providers in the Netherlands, only because the American internet companies have entrenched themselves even more in the country."

How could this be?

“Incumbents like Netflix have more first-run content. Zero rating was the only strategy the upstarts could use. It’s what you do if you can’t get any visibility at all.” Where activists take arms against Zero Rating, what they’re really trying to get data caps removed. Or in other words, they’re trying to get Netflix a free lunch.

Layton thinks that the Neutrality activists seized upon Zero Rating because their original fears had, over a decade, simply proved to be unfounded.      There were other factors that gave Parliament confidence in dealing with the activists. Nothing seemed to satisfy the calls for ever-more, ever-harder legislation: no neutrality legislation was ever “pure” enough for the neutrality activists. Regulations led to confusion, and often perversely anti-consumer outcomes. And genuine public support for the regulations seemed to be thin to non-existent.

After passing neutrality regulation in 2010, operators in Chile could no longer market themselves on speed or quality - that was now illegal. (Seriously). They instead sought to put specific services outside the data bundle. But in 2014 the government banned that, becoming the first state to outlaw zero-rating. The murky ruling pleased no one. The regulator’s economic advisor memorably called it “populist idiocy from a small group of activists. A new form of regulatory capture.” Economist Pablo Bello on zero-rating: 

What customers really cared about, as measured by the complaints to regulators, was performance, particularly on mobile networks; poor customer service, including lack of information and dodgy billing. Only 1.8 per cent cared about neutrality or zero rating. The only public complaint on file was by the local Net Neutrality activist group!   The Netherlands banned HBO Go and forced an ended the free (but limited) Wi-Fi offered to travellers at Schipol airport, one of the world’s busiest hubs. Netflix now dominates the Dutch market. MEPs looked at the real-world examples and asked themselves, "Does anyone really want to live in the slacktivist’s world?"

“The business models that Net Neutrality lobby has been saying are so dangerous don’t exist today," says Layton. "If you are a telco and want to charge the next Skype a fee, then there’s a transaction cost to extracting that money. There’s no business model there.”

She thinks network operators had been slow to adjust to the public’s explosive demand for data. The report notes that, “What is frequently described as a predatory situation between operators and third party applications, might also be viewed as operators having the wrong business model in a time of change”.

"It turns out soft rules work better because you have the power of the carrot and stick," says Layton. "The stick holds operators' feet to the fire with the threat that the regulator can take more action. The carrot is the incentive for good behaviour and having a less regulated environment. When you have hard rules, you remove incentive for cooperation, so operators frequently put energy into litigation inside."

What Europe decided to this week was kill the issue politically. Europe is beset by problems - mass unemployment, and mass migration - but in this instance, it has dodged the bullet. By contrast, Layton sees huge problems ahead for the USA, where activists captured the regulator.

"The US rules are only supported by the President and three commissioners at the FCC.  It has a shaky foundation, and is being challenged by nine lawsuits.  On the other hand, the EU rules have the buy-in of the Parliament, the Commission, the Council—as well as many other parties, so they will likely last. And there’s not a tradition for litigation in the the way there is in the US.

“If this is the way you're going to do Net Neutrality, it’s fundamentally not a good way to do policy."  

The US seems to have lobbied itself into a rancorous and expensive stalemate.

You can download and read the study ("Zero Rating: Do Hard Rules Protect or Harm Consumers and Competition? Evidence from Chile, Netherlands and Slovenia") here.

It's an eye opener.®

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