Net neutrality developments in the UK: when is ‘Internet Access’ not Internet access?

The UK Broadband Stakeholders Group (BSG) has published a voluntary code of practice on 'open Internet' titled 'Supporting access to legal services and safeguarding against negative discrimination on the open internet'.¹ This code aims to discourage Internet service providers (ISPs) from discriminating against specific types of content on their best-efforts Internet services², while permitting necessary intervention, for example on child protection grounds. Many UK ISPs have signed this code, but several – including Everything Everywhere, Virgin Media and Vodafone – have not.

Much in the code of practice is unobjectionable: reasonable traffic management practices are essential (at the moment at least), and clarity about these practices is critical to the proper functioning of the retail market. Indeed, we recognise the achievement of the BSG in reaching this point, which is probably about as much as can be achieved with a voluntary arrangement. However, we observe that it has proved impossible to accommodate the positions of all stakeholders.

Notable among the code's provisions is the following:

"Signatories to this code support the concept of the open internet and the general principle that legal content, applications and services, or categories thereof should not be blocked. Whilst products that offer full internet access will be the norm, in order to support product differentiation and consumer choice, ISPs retain the ability to offer alternative types of products. In instances where certain classes of legal content, applications and/or services are unavailable on a product signatories to this code will:

i. Not use the term "Internet access" to describe or market such products;

and

ii. Ensure that any restrictions are effectively communicated to consumers, building on the commitments made in the transparency code of practice."

The overall effect is to prevent those signatory operators that wish to charge extra for access to specific over-the-top Internet services (for example, OTT VoIP) from so doing, in the following two ways.

• Products that offer full Internet access will have to be the norm.
• Products that block even one service will not be able to be sold as 'Internet access'.

In other words, ISPs will not be able to describe a service that is 'Internet access but no Skype unless you pay extra', using the term 'Internet access'.³

We have two immediate comments.

• Debates about words will simply fuel creative marketing.⁴Arguably, customers do not care about 'Internet' per se: advertisements for mobile data services already lead with specific apps such as Facebook or BlackBerry Messenger or indeed Facetime. It also requires little effort to generate synonyms not covered by the code: 'Web browsing', 'surfing the Net', 'getting online', 'mobile broadband' and so on (indeed Virgin Media, a non-signatory, complains about lack of clarity). Further, the voluntary nature of the code itself could lead to additional confusion for end users, because those that have not signed up to the code can continue to describe their data offers as 'Internet access', even if they block certain applications, while an equivalent offer from a signatory cannot be described in those terms, which could lead to customers actually believing that the more limited offer is 'better' – the exact opposite to what is intended.
• It is hardly surprising that two major UK mobile operators (Vodafone and Everything Everywhere) have not signed up. To sign up is to invite the use of VoIP and messaging applications, such as WhatsApp Messenger on smartphones, which will restrict their ability to price discriminate between voice and data services. However, such price discrimination is not necessarily to the detriment of end users (it can lead to allocative efficiency where the price elasticity of each service is different: Ramsey-Boiteux pricing).

The likely effect if all mobile operators were to sign up to the code can be observed in the Netherlands, where price discrimination and blocking was made illegal (rather than a voluntary code, as here). An immediate effect was that mobile operators increased the retail unit price of data on smartphones. Operators have to protect their voice revenue, because voice still represents the majority of the retail revenue.⁵ SMS is not protectable by increasing data prices (because the data price required is stratospheric) but it can, like voice, be protected by bundling: offers can safely have attractive low prices for data only if you already buy lots of call minutes and/or SMS.

So handset tariffs will evolve into combined voice, SMS and data bundles for heavy data users, and pay-as-you-go data tariffs will be expensive (for example, equating 1MB with a voice minute). The resulting complexity in handset tariffs, high prices for simple pay-as-you-go data, and usurious charges for 'breakage' (going over your in-bundle usage) may ultimately be worse for many consumers than the disease that Dutch policy makers were trying to cure (charges for access to WhatsApp Messenger or VoIP).

1 http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1340/Itemid,63/  August 2012

2 Noting that non-best-efforts-Internet managed services could still exist, and are not restricted

3 As an aside, this retail-focused mechanism avoids the difficulty of a law about net neutrality that might have spillover effects in the wholesale market, which often uses "partial Internet access" products such as peering and partial Transit.

4 Or encourage Lewis Carroll fans, as Humpty Dumpty said 'When I use a word, it means just what I choose it to mean — neither more nor less.'

5 60% of the ARPU in the Netherlands in 1Q 2012, source: Analysys Mason Research Telecoms Market Matrix.