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The EU Court of Justice rules on zero-rating practices under the Net Neutrality Regulation

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Laurent De Muyter
Jones Day, Brussels
ldemuyter@jonesday.com

 

In Telenor Hungary[1] adopted on 15 September 2020, the Court of Justice of the European Union (Grand Chamber) has, for the first time, interpreted Regulation 2015/2120 on the ‘open internet’ (the Net Neutrality Regulation).[2] Through this preliminary ruling, the Court gives some guidance on the validity and limits of so-called ‘zero-rating’ offers.

What is the Net Neutrality Regulation?

The Net Neutrality Regulation, which came into force in April 2016, sets out the principles for fair and equal treatment of internet traffic (net neutrality). The Regulation includes the provisions of: guaranteeing the right of end-users to access the internet and provide services on the internet (Article 3(1) and (2)); as well as requiring internet access providers to treat internet traffic equally and in a non-discriminatory manner (Article 3(3)).

What is zero-rating?

Zero-rating is a practice under which traffic relating to some applications (typically Facebook, Netflix, Spotify, etc) is not counted for in the monthly data allowance paid by subscribers. The practice is not addressed in the Net Neutrality Regulation as such, although the Commission suggests, in its related Q&As, that zero-rating could, in some circumstances, be prohibited under the Net Neutrality Regulation.[3] When such circumstances should materialise has been heavily discussed since the adoption of the Regulation. Several reports on zero-rating have been published.[4] Zero-rating is also discussed in the BEREC Guidelines on net neutrality where BEREC (the Body of European Regulators for Electronic Communications) reiterates that zero-rating requires a case-by-case approach.[5] Several national regulatory authorities have also adopted decisions either validating or banning zero-rating practices.

The facts of the case

The case concerned two zero-rating offers proposed by the operator Telenor in Hungary (one for chatting apps, the other for music apps), where some app-related traffic was not included in the bundle. Furthermore, such applications could even be used when the volume of data in the bundle had been exhausted. Conversely, technical measures were adopted to block or slow down traffic on the other services once the bundle’s data limit has been reached.

Telenor’s offers were banned by the national regulatory authority in administrative decisions that were appealed before the Court of Budapest. The Court then asked for a preliminary ruling from the Court of Justice of the European Union (CJEU) on the compatibility of the Telenor offers with Article 3(1) and (2) of the Net Neutrality Regulation, which guarantees the right of end-users both to access and to provide services, and Article 3(3), which sets out a general requirement of equal and non-discriminatory treatment of the internet traffic.

The Court’s decision

According to the CJEU, Article 3(1) and (2) of the Net Neutrality Regulation, which guarantees end-users rights to internet access service, is to be applied by the national judge who has to conduct an overall assessment of the provider’s agreements and commercial practices. Zero-rating must be assessed on a case-by-case basis, in the light of the parameters set out in the Regulation’s recital 7, which requires assessors to look at whether, by reason of their ‘scale’, the practice and agreements lead to situations where end users’ choice is materially reduced. This should take into account, in particular, the respective market positions of the providers of internet access services and of the providers of content, applications and services involved.

In this respect, the Court found that the practice of blocking or slowing down customers’ general internet use once they reached their data caps, while still allowing favoured services to run unimpeded, is likely to restrict the exercise of end-users’ rights if concluded over a significant part of the market. To reach this conclusion, the Court stated that an analysis of the effect of the measures on a user’s rights must be conducted. It relies on the fact that such bundled offers, due to the potential cumulative effect, lead to a correlation between the increase in the use of certain services (the zero-rated apps) and the reduction in the use of other apps. Moreover, the risk of cumulative effect is exponential as more users subscribe to these types of offers.

With regard to the general ban of discrimination on traffic enshrined in Article 3(3) of the Net Neutrality Regulation, the Court goes further, stating that the finding of a breach of this prohibition is not subject to a prior assessment of the impact of measures to block or slow down traffic on the exercise of users’ rights. In addition, the Court stated that the difference in treatment made by an access provider must be based on objective differences between the technical requirements for quality of service of specific categories. Consequently, discrimination between different services based on commercial considerations, such as the throttling of non-zero based apps only when the cap of the bundle has been reached, is considered contrary to that provision.

The impact of the Court’s decision

The case is important for all internet access providers in the EU as it sets out the limit for zero-rating offers. Zero-rating requires a necessarily complex assessment of its market impact; and cannot include throttling non-zero-based traffic.

The Court’s decision confirms the growing relevance of ex ante regulation as a tool to prevent market practices, at a time where the EU is also considering the introduction of ex ante digital platform regulation and new competitive tools.[6]



Notes

 

[1] Joined cases C-807/18 and C-39/19, Telenor Magyarország Zrt v Nemzeti Média- és Hírközlési Hatóság Elnöke.

[2] Regulation (EU) 2015/2120 of the European Parliament and of the Council, 25 November 2015, laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the EU, OJ L 310, 26 November 2015, pp1–18.

[3] MEMO 15/5275, Roaming charges and open internet: questions and answers, 30 June 2015.

[4] See eg, Report for the European Commission, Zero-rating practices in broadband markets, February 2017, available at: https://ec.europa.eu/competition/publications/reports/kd0217687enn.pdf; CERRE, a fresh look at zero rating, 28 March 2018, available at: https://cerre.eu/wp-content/uploads/2020/06/CERRE_ZeroRating_FinalReport.pdf; OECD Digital economy Paper, The effects of zero rating, July 2019, available at www.oecd-ilibrary.org/docserver/6eefc666-en.pdf?expires=1601049294&id=id&accname=guest&checksum=3AE8F1321B4841ECC4B0014244C2B418.

[5] BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules, BoR (16) 127; BEREC Guidelines on the Implementation of the Open Internet Regulation, BoR (20) 112. See also BEREC information on zero-rating, available at: https://berec.europa.eu/eng/open_internet/zero_rating/.

[6] See ‘European Commission Considers Expanding Investigative and Regulatory Authority in Digital Sector’, Jones Day, Insights, June 2020, available at: www.jonesday.com/en/insights/2020/06/european-commission-considers-expanding-investigative-and-regulatory-authority-in-digital-sector.

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