EU Court of Justice rules on zero-rating

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Innocenzo Genna
Genna Cabinet Sprl, Bruxelles
inno@innogenna.it

By a decision dated 15 September 2020,^[1] the Court of Justice of the European Union (CJEU) has confirmed that zero-rating practices are banned under Regulation 2015/2120,^[2] the Regulation that introduced net neutrality provisions into the EU framework.

What is zero-rating?

Zero-rating is a commercial practice, quite common in the mobile market, consisting of providing free internet access under certain conditions, such as by only permitting access to certain websites/services or by subsidising the service with advertising or by exempting certain websites from the data allowance. This special commercial practice has barely been challenged by net neutrality supporters because it may empower telecom operators to discriminate against internet services and providers, so as to influence the decisions and behaviour of consumers.

The most common zero-rating practices consists of permitting users to access, without costs, communication services or social networks selected by the mobile operators on the basis of commercial deals with the internet providers concerned. The most well-known case of zero-rating was the so-called ‘Facebook Zero’, whereby mobile providers, in collaboration with Facebook, waived data charges for accessing the social network on phones via a stripped-down text-only version of its mobile website. This initiative mostly took place in Africa.

Zero-rating under EU rules

The outcome of the current CJEU decision was not inevitable, because zero-rating practices are not clearly and specifically ruled in the Regulation. This is unlike specialised services and network management practices for which very detailed provisions exist, such as Article 3 section 5 for specialised services and Article 3 section 3 for network management practices respectively. By contrast, the Regulation does not mention the term ‘zero-rating’. However, zero-rating was considered forbidden thanks to the combined reading of Article 3, sections 1 and 2, according to which:

(Section 1). ‘End-users shall have the right to access and distribute information and content, use and provide applications and services, and use terminal equipment of their choice, irrespective of the end-user’s or provider’s location or the location, origin or destination of the information, content, application or service, via their internet access service. This paragraph is without prejudice to European Union law, or national law that complies with EU law, related to the lawfulness of the content, applications or services.’

(Section 2). ‘Agreements between providers of internet access services and end-users on commercial and technical conditions and the characteristics of internet access services such as price, data volumes or speed, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the rights of end-users laid down in paragraph 1.’

The reasons why the Regulation does not explicitly define zero-rating, while trying however to protect the user’s interests that could be affected by these practices, is mainly historical. When the European Commission’s proposal was tabled in 2013 there was little awareness about zero-rating and its implications for the rights of internet users. For some authors zero-rating was just a matter of competition rather than a net neutrality issue. The importance of including zero-rating into the net neutrality reform arose later, when the proposal was discussed in the later stages of the legislative procedure. This is why the Regulation did not include a detailed definition of zero-rating.

The CJEU decision is therefore important because it eliminates any doubt that Article 3, sections 1 and 2 of the Regulation are aimed at targeting, inter alia, zero-rating practices.

The role of BEREC

It is worth noting that in 2016, the European agency grouping the national telecoms sector BEREC (the Body of European Regulators for Electronic Communications), adopted guidelines,^[3] to clarify that zero-rating practices fall within the ambit of application of the above rules.^[4] According to BEREC, however, not all zero-rating practices are banned in principle. It is up to the national regulator or courts to make an assessment as to the effect on users’ rights, based on various market circumstances including, in particular, size and market share of the internet service provider (ISP) and the over-the-top media (OTT) which have made the zero-rating deal. In fact, courts in the Netherlands and Slovenia have ruled that Article 3 of the Regulation does not contain a total ban of price differentiation by way of zero-rating offers. These countries were relevant because their national net neutrality legislation prohibited zero-rating practices in a radical way, while the Regulation, as interpreted by BEREC, leaves room for discretionary enforcement.

In general, since the Regulation came into force, various mobile operators had been fined by national regulators for undertaking forbidden zero-rating practices. However, legal uncertainty existed.

In 2019 the European Commission published a report^[5] and a study^[6] which analysed the implementation of the Regulation in EU Member States, also with reference to mobile operators’ zero-rating practices, which were quite common.

The case decided by the CJEU

In the current case, the Hungarian subsidiary of Telenor, Telenor Magyarország Zrt, was fined by the local authority on account of two controversial zero-rating packages. The tariffs concerned consisted of the data traffic being generated by specific applications and services which was complementary to the data volume purchased by customers. Once the data volume had been used up, customers could continue to use specific applications and services without restriction, while measures blocking or slowing down data traffic were applied to other available applications and services.

The decision of the CJEU does not contradict BEREC’s view that not all zero-rating practices are banned in principle. The Court has simply confirmed that Article 3, sections 1 and 2 of the Regulation is a correct legal basis for the enforcement of the ban on zero-rating, but it leaves the discretion to implementing authorities whether the concrete circumstances of a particular case are sufficient to disallow practices and impose fines.

Impact on the market

Mobile operators had clearly hoped for a different ruling, possibly minimising the powers of national authorities to ban zero-rating practices. The ECJ decision seems to confirm the status quo, by which the Regulation is a legal basis for the ban, and national authorities have discretion to enforce it on the basis of factual circumstances, in particular by taking into consideration size and market shares of the operators concerned. This means that a dominant operator such a T-Mobile or Vodafone is unlikely to have a zero-rating tariff approved, whereas a small mobile operator or a mobile virtual network operator may have a greater chance of approval.

It is questionable whether GAFAs (Google, Apple, Facebook and Amazon) and big OTTs may be winners or losers in this context. In my opinion, the new CJEU ruling does not particularly affect them. It is true that online platforms support in general net neutrality. However, even in a non-neutral environment, that is to say an internet with zero-rating practices, GAFAs and dominant online operators, thanks to their economic power, will be well placed to negotiate such agreements with phone companies.

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