|23 April, 2018

Europe tests limits of net neutrality benefits

The rules are being strictly applied on the other side of the Atlantic

Young woman using laptop, travel booking.

Young woman using laptop, travel booking.

LONDON - Europe is testing the limits of net neutrality rules even as the United States is considering rolling them back. If treating all internet traffic equally is as damaging as its critics claim, European telecom groups will in the coming years slash network investment and offer fewer new services.

The U.S. Federal Communications Commission voted to repeal net neutrality rules in December 2017, within two years of agreeing with European regulators that internet providers like Comcast and AT&T should not be able to discriminate against particular services or websites. But the rules are being strictly applied on the other side of the Atlantic.

Take Britain, whose communications watchdog Ofcom is investigating whether Three and Vodafone intentionally slowed down services such as high-definition video streaming. And Dutch regulators in 2017 told Sweden’s Tele2 to lift restrictions on users who accessed the internet on other devices through a mobile connection – also the subject of Britain’s investigation into Three.

These are not the practices that most perturb net neutrality advocates. They fret more about internet providers slowing down traffic to rival-owned services or taking payment from tech giants in return for speeding up traffic to particular websites and apps.

Critics of net neutrality say such rules reduce returns that can be made by building faster networks and introducing new services. But investors are sending mixed signals. The enterprise value of the five biggest European telcos is on average 5.6 times forward EBITDA, compared with 6.8 times for the big six U.S. cable and telecom businesses. But both camps have since October been valued at a roughly 40 percent discount to benchmark indices – the STOXX 50 in Europe and the S&P 500 for the United States. Perhaps that is because U.S. companies are wary of exploiting looser regulation for fear of a public backlash.

Meanwhile, there’s some divergence in investment trends. The U.S. cohort’s average capital expenditure as a proportion of revenue, a proxy for network investment, is expected by analysts to rise slightly to 16 percent in 2019 compared with 15 percent last year. In Europe, the average forecast is for a 2 percentage point fall to 16 percent

It’s too early to say whether net neutrality rules are responsible. But it would be understandable if the prospect of fines worth 10 percent of revenue make groups like Vodafone warier of investing. Europe’s exacting standards will eventually show whether the costs of net neutrality outweigh its benefits.

CONTEXT NEWS

- Britain’s communications watchdog Ofcom on March 6 opened an investigation into mobile operators Three and Vodafone to assess their compliance with the European Union’s Open Internet Access Regulation, which requires internet service providers to treat all traffic equally.

- Ofcom is looking into Three’s restriction on the practice of using a mobile to connect another device to the internet and prohibitions on the use of phone SIM cards in other devices, such as tablets.

- The regulator is also looking into whether Three and Vodafone intentionally slowed down internet traffic, especially when customers were streaming videos or using mobile data abroad, and whether Vodafone was transparent about which services were included in its free-data promotions.

- Portuguese telecoms regulator Anacom on Feb. 28 said the country's main operators – MEO, NOS and Vodafone – had violated EU internet neutrality rules.

- Dutch regulators last year required Sweden’s Tele2 to allow customers to share their smartphone internet connection with other devices. According to European net neutrality rules, internet users cannot be restricted in their online behaviour or in the choice of equipment they wish to use to go online.

- The U.S. Federal Communications Commission on Dec. 14 voted to reverse 2015 rules that required internet service providers to treat online content equally. Chairman Ajit Pai and two other Republican commissioners supported the proposal.

(Editing by Swaha Pattanaik and Bob Cervi)

© Reuters News 2018

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