“…If any of the network participants start charging for data delivery, then other network participants will start charging. And it will break down this great crowdsourcing mechanism that [the] internet has, where all the network participants can share with all other network participants, all their connections, all their network resources. So that you don’t charge one another for data-delivery, you charge, you only pay money or you are only responsible for maintaining connection,” observed Professor K.S. Park, Co-founder of OpenNet Korea, while discussing how network usage fees hurt net neutrality during MediaNama’s discussion focusing on ‘International Trends in Network Usage Fees’ on October 4.
First, what’s net neutrality? Fundamentally, net neutrality is a concept that allows open and non-discriminatory access to the Internet for all. This is irrespective of the device and application used and [the] content consumed by end users. As noted in this explainer on net neutrality, “telecom operators/ISPs are access services providers, and can control either how much you access, what you access, how fast you access and how much you pay to access content and services on the Internet”. In essence, a telecommunication system guided by the net neutrality regime helps keep in check [the] vested interests of telecom operators, internet service providers, and other stakeholders that may cause a few companies to have a greater control over parts of the internet and restrict equal access to the users.
What was the discussion about?
In response to a recent consultation paper published by the Telecom Regulatory Authority of India (TRAI) on the regulation of online communication platforms, telecom operators have proposed creating revenue-sharing agreements between OTTs and telcos. This means, companies like Jio, Bharti Airtel, BSNL, and Vodafone Idea essentially want OTT platforms to pay a network fee for using telcos’ infrastructure. Amid criticism that network fees will jeopardise net neutrality, organisations supporting the demand have cited developments related to network fees in South Korea and Europe to strengthen their arguments. MediaNama’s discussion aimed at understanding global approaches to demands of network usage fees and their impact on processes of the internet in general. In this article, we focus on how different aspects of network usage fees impact net neutrality.
Moderated by MediaNama Founder and Editor Nikhil Pahwa, and MediaNama journalist Kamya Pandey, the session included panellists, Prof. Park, Carl Gahnberg [Director of Policy Development and Research at the Internet Society], Barbara van Schewick [Stanford University], Thomas Volmer [Head of Global Content Delivery Policy, Netflix], Alissa Starzak [Vice President, Global Head of Public Policy, Cloudflare].
MediaNama hosted this discussion with support from ADIF, Google, Meta and Netflix.
Does fair share contribution from OTTs violate net neutrality?
Proponents of network fees argue that a fair share of contribution by OTT platforms for delivering their traffic will not affect access to open and free internet and that online services will remain accessible to users without any differentiation. In response to Pahwa’s question about whether or not such a proposition is valid, experts van Schewick and Gahnberg highlighted how network fees will lead to economic discrimination among companies and distort competition in the telecom space, which will ultimately affect the smooth and unhindered flow of information on the internet for all users.
1. Impact on competition among content providers:
Panellist Barbara van Schewick explains that fundamentally, network fees will lead to a system wherein some companies, which offer popular services, will be charged, while others may be excluded from such levy. A differential treatment among companies based on the services they provide will further lead to “economic discrimination”.
“And treating some companies differently from others is a key net neutrality issue. It distorts competition among application and content providers. And that’s what we want to avoid. So, I say this is ironic because both in India and in Europe, we have very clear statements that make clear that this kind of economic discrimination, charging some companies but not others, is squarely covered by the net neutrality protections,” she stated.
In a related point of discussion, Pahwa mentioned that those in support of network usage fees also argue that it’s a fair mechanism to reign in on Big Tech. However, Starzak was of the view that though an appealing argument, it’s an incredibly misguided one. Contrarily, network usage fee creates a system wherein the Big Tech companies are in a better position than everyone else. Starzak stated that this is because, if companies pay for access for one reason or another, they will be prioritised in terms of getting a direct connection. And it’s the big tech companies who will be able to make such payments and get leverage over others, and this is antithetical to the primary objective of keeping such companies in control.
She observed, “But if you think about the effect on the ecosystem overall, practically what you want is an ecosystem where a new entrant can come on board. Consumers can get access to that content as appropriate…And so, how do you actually develop an ecosystem where that works? It’s actually not a network usage-free world. It’s a world where you have fast interconnections, where the expectation is that content will be delivered when people request it, [and] where that is sort of an easy way of going about it. So, again, I think that was a little bit backwards.”
2. Economic and technical discrimination go hand in hand
Barbara van Schewick pointed out an act of technical discrimination, wherein service providers speed up some applications that have paid for the network, and slow down or block applications that have not paid a fee. While this violates net neutrality principles, she also highlighted that, unlike traditional arguments that only technical discrimination violates net neutrality, both technical and economic discrimination are two sides of the same coin.
“I can harm you by making your application slower and I can harm you by charging your fee. So, basically what the ISPs are trying to do… [is] to confuse everyone by saying we are not talking about technical discrimination. We want to transport every packet in the same way. And the only thing that is different, some companies pay and some don’t. But that’s the wrong aspect to look at because the economic discrimination as such violates net neutrality.”
She explained further, “You all know that India was one of the leaders in the world in recognizing that not counting some traffic against data caps and then having everything else eat up your data, this practice that we call zero-rating, that’s a net neutrality violation. That was TRAI in its 2016 order on differentiated pricing practices. And so, in India, too, we don’t have to speculate whether charging some companies and not others engaging in economic discrimination is a net neutrality violation. TRAI has already found that. And so, it doesn’t matter whether there is also blocking or throttling or pay prioritization.”
Note: According to the Body of European Regulator for Electronic Communications (BEREC), zero-rating refers to a practice where an Internet Service Provider (ISP) “applies a price of zero to the data traffic associated with a particular application or class of applications (and the data does not count towards any data cap in place on the internet access service). For example, if an internet access service does not charge a user for the data used to access a specific music streaming application or all music streaming applications, then the ISPs is zero-rating those applications”.
3. Charging data-delivery will “break down” the internet:
Adding to van Schewick’s views, Prof. Park reiterated that charging any company for propagating data violates net neutrality. According to him, conditioning data delivery on a payment constitutes financial discrimination, because under such circumstances, the data will not move forward, if it is not paid for. This, he says, refers to what is known as a sender-pay model.
Prof. Park observed that sender pay fundamentally violates net neutrality. This is because net neutrality requires all network participants to deliver data packages from one point to another without any charge or condition that’s financial, legal, or content-based.
He explained, “When you send ordinary mail, the in an envelope, what do you do? You put a stamp on it, right? So, as a sender, you have to pay. When you make a phone call, what do you do? You pay telecom companies, right? So, whoever is pushing the data on the network, quote-unquote, burdening the network, has to pay somebody to have the network deliver the data. That’s the sender-pay model. And we call the termination charge because we are asking the network to terminate, meaning deliver to the end, that data. So, the termination fee is actually a delivery charge. Now, as I said, the internet made this information revolution only by getting rid of the transaction cost of charging one another for data-delivery. If charging for data delivery takes place, again, it will create, it will generate a tremendous transaction cost that will just break down the internet.”
Gatekeepers that hinder equal access to the internet
1. Network fee creates monopolies among last mile ISPs: Payment to last-mile ISPs for terminating or delivering traffic that the customers are interested in is another worrisome measure that raises net neutrality issues. Last-mile ISPs act as a final layer of the larger internet network, providing an internet connection to an individual’s home. Pahwa pointed out that Indian telecom operators are concerned that if they are not paid by online services, ISPs will be unable to finance networks.
When asked whether the demand for a termination fee was valid, van Schewick illustrated a playbook that ISPs adhere to make everyone pay for data delivery. She explained that there are effectively two kinds of connections in a network—paid and unpaid ones. When a last-mile ISP pays a transit provider to send their data to and from the internet, doesn’t receive any payment for itself, or enters into an agreement to interconnect with someone directly without a fee, these are known as unpaid or data-settlement free connections. On the other hand, when a last-mile ISP are being paid for delivering the traffic that their customers requested, even though they are already being paid by their users to provide that service, that’s a paid connection.
So, what’s the playbook? van Schewick explained:
“…the reason these companies are able to do that [ask for termination fee] is because in most cases, they have found a way to blackmail the companies’ delivering data into paying them for terminating the traffic to their customers. We have seen that in the US. We are seeing that in Europe. We are seeing that in the Asian Pacific region. So, how does that work? If I’m, let’s say, Comcast in the US, which controls access to a huge part of the US broadband customers, or I’m Deutsche Telekom and I control access to almost 40% of fixed broadband customers in the United States, I have a number of customers that everybody has to serve. Even if I’m Google or Facebook or Netflix, I can’t afford to forgo access to Deutsche Telekom’s customers, to Comcast customers. And that gives these very large providers, generally only the one largest provider in a country, specific power to force companies into paying them, even though they don’t want to.”
When companies do not agree to pay ISPs for delivering data, ISPs also resort to degrading the quality of unpaid connections. She added termination fee also creates a disparity in the market as large platforms will end up having a leverage over small businesses, cloud providers etc., ultimately affecting the end user’s ability to access to the internet, irrespective of whether the website they want to visit can pay to reach the customer.
“And so, basically, when a country has good net neutrality protections or an explicit ban on network fees or sending party network pays in the law, that forecloses the ability of these large ISPs to basically blackmail everyone into paying them if they can afford it. And it prevents them from taking their customers hostage,” she added.
Further, van Schewick also highlighted that it not only distorts competition among companies, but also among ISPs, because it is only the larger providers that are in a position to pull off such practices. Thereby, depriving smaller companies of such income.
2. How access providers act as gatekeepers? Gahnberg observed that an access provider can act as a gatekeeper vis-à-vis third parties to access its customers and acts as a hindrance to free and fair access to last-mile delivery networks. This is where net neutrality becomes valuable, as it prevents the access provider from exploiting such structural conditions.
He added that this will also create a “termination monopoly”, where companies will have to negotiate with access providers for them to deliver their traffic at high prices, which is in direct conflict with the idea of net neutrality.
He further explained, “But interestingly, it could also have this very perverse effect where a small ISP that is not able to negotiate this contract with a content provider, they might become dependent on the large ISP to actually retrieve that traffic. And that means that the large ISP can double dip here. They can charge both the content provider for receiving that traffic, and they can also charge the small ISP for sending that traffic forward to the small ISP. So, this, of course, distorts the competition in the ISP market as well. So, the only real beneficiaries of these rules are the large telecom operators.”
3. Impact of backroom deals on user experience: Discussing the validity of arguments by telecom operators demanding a fair share from OTTs, Volmer highlighted that such a system would lead stakeholders backwards to a cable TV regime, wherein content providers charge distributors for access to content. Such a system works both ways, wherein distributors may demand a fee like distribution fee, and carriage fee from content providers for delivering their services.
He explained: “The point is, if you’re a consumer, you depend on those backroom deals between the content providers and the network distributors, and you don’t have control. Whereas on the net neutrality regime, you pay for your internet connection once, and you can do whatever you want, you can subscribe to any streaming service you’d like. So, you get better consumer choice and better allocation of resources, because companies invest better. So, we think that’s the superior model. If we ended up in a cable regime, who would pay whom? Indeed, it’s a fair question to ask.”
Note: The headline was updated for brevity on Oct 10 ’23 at 11:14 am.
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