Ofcom changes its approach to net neutrality: how the UK might spearhead a different approach in the digital world

Over the course of the last 12 months, a number of important developments in net neutrality have taken place at EU level: certain preliminary rulings resulted in the European body of telco regulator, BEREC, [1] revisiting its guidance on the matter, and in addition, European Commission officials have made it clear that they intend to consult on an initiative aimed at addressing a long-standing request from EU telecom operators to be able to charge content providers back for the cost of the capacity they use.

In the UK, Ofcom has also just launched a detailed consultation on a bespoke approach to net neutrality, which is open for comment until 13 January 2023 (“Consultation”).

In simple terms, net neutrality prohibits internet services providers (“ISPs”) from favouring certain content over another and requires open and equal access to the internet for all. This means that an ISP cannot restrict or discriminate between different traffic unless required for security or legal reasons. Against this backdrop, the largest ISPs signed a letter issued by the European Telecommunications Network Operators’ Association (ETNO) asking the regulators to allow for “the largest traffic generators to make a fair contribution to the sizeable costs they currently impose on European networks.”.[2] The telecom operators are arguing that such a contribution would allow them to deploy capacity faster and more inclusively, benefitting the SMEs.

While the Consultation does raise the possibility of charging the content providers, Ofcom has indicated that it has not seen sufficient evidence to persuade it that such a measure is needed[3]. However, the UK’s telecom watchdog’s overall approach indicates a distinct departure from the EU net neutrality rules set out by the Commission together with BEREC.

It is worth noting that Ofcom is of course no longer required to take full account of the guidelines issued at EU level or through the European body of telco regulators, BEREC, post-Brexit, although it can take them into account, if it deems it appropriate to do so.

Benefiting from a wealth of hands-on involvement in previous works as part of BEREC, including on the issues of net neutrality, Ofcom now wants to “make sure they [the ISPs] can also innovate, alongside those developing new content and services, and protect their networks when traffic levels might push them to their limits” as part of its Consultation. This comes after DCMS[4] recently published its UK Digital Strategy Paper[5] indicating its aim that the UK leads the global debate on digital technologies, in order to seize opportunities and become a global leader.

What are the proposed changes?

1. Use of traffic management measures to manage networks

1.1 General rules and proposed approach

Under the current rules, ISPs are not allowed to enter agreements that limits the users’ rights to access and distribute information and all traffic should be treated equally. Ofcom’s view is that the existing rules can be too restrictive, lacking clarity, and it proposes allowing the IPSs to throttle all traffic to the same extent, as well as to prioritise traffic for a set of retail customers in order to ensure the quality-of-service levels are met.

These changes will however entail an increased level of monitoring and reporting by Ofcom.

1.2 Charging content providers

Ofcom indicated they are not minded to make a game-changing decision in this field, while at the same time, not excluding future governmental or parliamentary intervention.

Ofcom pointed out that traffic in the UK continues to grow with an average year-on-year growth over 2013 to 2021 being 42% for the average fixed broadband consumer and 37% for the average mobile data consumer[6]. In this context, Ofcom observed that ISPs act as gatekeepers of end-users, and accordingly this could result in the ISPs being able to exercise market power over content providers. At the same time, Ofcom also recognises the countervailing buyer power of some content providers.

However, in making an ex-ante assessment, Ofcom is generally worried by the impact of such charges on small content providers and notes that network investments can be used by ISPs to broaden their service offering.

It remains to be seen how this will be received by the market and how it will compare to the EU’s approach.

2. Developing specialised services

Currently, in order to fall outside the scope of net neutrality when providing certain ‘specialised services’, the ISPs need to, among others, ensure the network capacity is sufficient, there is a level of quality and the ‘specialised services’ are not replacing internet services.

In its new proposal, Ofcom would like to ensure that net neutrality rules do not artificially create and impose barriers on the ISPs (or mobile network operators (“MNOs”)) preventing them from launching services such as network slicing. Ofcom is therefore proposing guidance to clarify the conditions under which such “specialised services” can be offered. Ofcom is interestingly considering network slicing[7] as a case study for the application of the net neutrality principles to ‘specialised services’, noting that currently there are a number of factors that need to be satisfied before the service can fall outside the rules, including to ensure the equal treatment of traffic.

This is in line with the UK government’s desire to promote 5G and innovation in the digital space.

3. Introducing premium quality retail offers

Deriving from the rules on traffic management, the application of different levels of quality in retail offers has long been debated.

Ofcom proposes to clarify the approach to premium quality retail offers by issuing guidance on when such offers are permitted i.e. (i) retail offers which provide different levels of quality of service for different ISP subscriptions and (ii) retail offers which provide multiple quality of service levels within a single subscription are also permitted if the level of quality of service is independent of the content and service accessed.

This appears to bring a level-playing field between the ISPs and the content providers who are also changing their business models by introducing ad-supported subscriptions[8].

4. Zero rating offers

Under the applicable rules, an ISP is not allowed to give its customers more favourable access to certain content over other types and Ofcom is currently assessing all zero-rating offers on a case-by-case basis, considering the potential impact of the offer on consumers’ incentives, as well as the market position of both the internet and content providers. Zero rating occurs when an ISP provides access to a certain app or group of apps at a zero rate, or in other words, at no charge. It is a widely debated subject with certain countries across the world finding it highly anti-competitive, and it has also been under the spotlight in the EU recently.

Ofcom has now concluded that zero-rating is, in fact, largely beneficial to consumers and they can take a lighter touch approach when reviewing the offers. Unlike the recent European Court of Justice preliminary rulings, Ofcom considers that net neutrality does not prohibit ISPs from having zero-rating offers to their customers and proposes the categorisation of three types of permissible zero-rating offers:

• Type 1 are those where zero-rate access is given to information and services of public sector bodies i.e. the NHS which are unlikely to be considered further since they are deemed to be beneficial to consumers;
• Type 2 are offers open to all content providers in a particular class or type and Ofcom is unlikely to consider these offers any further once satisfied they fall under the Type 2 category;
• Type 3 are other more specialised types of offers that Ofcom will continue to monitor and assess on a case-by-case basis.

[1] Body of European Regulators for Electronic Communications

[2] ceo statement_sept.2022.pdf (etno.eu)

[3] As well as deferring the matter to the Government and the Parliament

[4] Department for Digital, Culture, Media and Sport

[5] UK Digital Strategy - GOV.UK (www.gov.uk)

[6] Para. 3.42 Consultation: Net neutrality review (ofcom.org.uk)

[7] Network slicing is a feature of 5G networks, a capability that allows a mobile network operator to create multiple virtual networks (slices) on top of its common shared physical infrastructure with each slice being logically separated and self-contained and confirmed to meet the quality requirements of particular applications, services or customers.

[8] As announced earlier this year