ISPs and Content Providers Respond to Ofcom’s UK Net Neutrality Review

However, there are a few caveats to this, because the ISPA would still support an explicit carve-out of enterprise-grade business services from the regime, which can be highly tailored (e.g. SDN, NFV, 5G, hybrid networks and IoT). “If a wholesale carve-out is not possible, Ofcom should at least consider clarifying the application of specialised services in relation to enterprise grade connectivity,” said the ISPA.

The association also seeks a different approach to “high traffic events“, due to “the risk of service degradation due to a small number of content providers updating their offering simultaneously,” which is increasing year on year (this sounds similar to the point that BT made about off-peak updates for video games etc.).

The ISPA would also like to see more clarity from Ofcom on how the UK’s net neutrality framework can “accommodate the potential for innovation offered by full-fibre and 5G networks,” but they don’t spell out precisely what they mean by “innovation” in this case.

Netflix

The internet streaming giant is another veteran of this debate, although they have recently faced some setbacks, such as in South Korea where a local ISP – SK Broadband – successfully sued the firm in a dispute over content delivery costs. But it’s important to stress that the law in South Korea is different from the UK, not least because they already allow for network usage fees through a 2016 framework. This is perhaps also one of the reasons why internet IP transit prices in Korea are now significantly more expensive than quite a few other countries.

Extract from Netflix’s Response

Netflix has observed some ISPs use their position over access to customers in order to extract network fees from content providers instead of working together to provide the best quality of service under a more cooperative approach. These fees serve no purpose other than providing a rent for the ISP, as ISPs have little incentive to use revenues from interconnection fees to build out network capacity or reduce rates for end-users.

In fact, seeking network payments will lead to perverse incentives for the ISPs as the only way to force a content provider to pay is to ensure the congestion of all alternative routes (through Transit ISPs) into the ISP’s network. Such restrictive interconnection practices have two consequences. First, customers of the ISP will receive poor performance on any content or service not directly connected to the ISP, despite paying for access to the entire internet, and second, the only alternative for a content provider will be to either pay a termination fee or suffer congestion and quality degradation.

Suffice to say, Netflix broadly and predictably supports the current rules, although they do want to see a closer examination of Zero Rating plans, such as those that only apply to certain video streaming services but not others.

Three UK

Mobile operators have a long history of arguing against Net Neutrality rules, thus it will come as no surprise that Three UK argues strongly for more flexibility, seemingly across as many areas as it can. “If anything, improved traffic management measures will allow customers to have more reliable access to various types of more basic services as more data-heavy services are managed more appropriately,” said Three.

Virgin Media (VMO2)

VMO2, which much like BT sits in that awkward ground of being a mobile operator, content broadcaster and broadband provider – all rolled into one, views the current regulation as being based off a “poorly drafted law, reflective of the fact that it represents a compromise position to address a potential problem that few legislators really understood at the time of adoption.”

Extract from VMO2’s Response

Ofcom should feel emboldened to take an expansive approach to its review and engender a more permissive and equitable net neutrality regime. This does not necessarily mean that there is no place for a net neutrality regulatory framework. Rather, we believe that the way forward is a principles-based approach enshrining transparency and the maintenance of freedom of access, and fostering the freedom to innovate.

As far as the current legislative framework is concerned, there is no need for over-interpretation of existing law – instead, Ofcom should merely clarify where the drafting is imprecise. The internet is a dynamic economy precisely because it is not regulated – this ability to innovate freely must be applied to the telecoms sector if it is to keep pace with the rest of the value chain. Ofcom should not be placed in the position of ‘approving’ technological innovation for ECS/ECNs because of over-prescriptive interpretations of what are high level concepts enshrined in the law.

Vodafone

As with other mobile operators, Vodafone argues strongly against Net Neutrality and calls for the existing rules to recieve “significant reform” as they allegedly limit “the potential of network and service benefits that can be offered to consumers, businesses, and the public sector.” The operator’s response is quite long and thus difficult to summarise, but they somehow manage to suggest that the current rules are delivering “inferior outcomes for UK consumers,” which is highly debatable.

Extract from Vodafone’s Response

Regulation in the context of Net Neutrality has overreached. It has sought to guard against a problem that has never manifested itself in the UK. The success of competition between retail broadband and mobile providers acts as a natural constraint against any attempts to materially influence the internet experience of consumers. There are no significant co-ownership concerns regarding ISPs and content providers in the UK, negating the need for such restrictive rules.

There is also a question of fairness. Today the rules are firmly focused in the wrong place. While intense retail competition prevents network providers acting to influence internet outcomes, the large platforms who dominate the internet sit outside the jurisdiction of Net Neutrality and can consequently favour their own applications and services inside their respective eco-systems and Content Delivery Networks (CDNs).

There is no incentive on these eco-systems to use network capacity efficiently, being entirely disconnected from the costs associated with providing access. This imbalance in regulatory approach is not only unjust and unsustainable, it is delivering inferior outcomes for UK consumers.

ITV

Much like the BBC and other broadcasters, the ITV supports the current approach and adds that “net neutrality rules do not appear to have acted as any form of constraint to investment.” They also criticise BT’s position on the subject.

Extract from ITV’s Response

The only firm we are aware is actively pushing for the removal of the rules is BT. BT seems to be suggesting that the growth in online services and content and a lack of coordination between content providers over when content is released means that a) their costs are increasing and b) that the network is actually unable to cope with consumer demand.

Their CEO has also suggested that the “…only contribution being made [to meet such costs] is by consumers through what they pay or by us, the networks” and asked “Is that fair?” These issues, it argues, necessitate the removal of the net neutrality rule to enable the charging of a subset of online content providers which BT argue offer the most bandwidth-intensive services. We do not believe either of these positions holds merit.

ITV goes on to note that Openreach has only recently cut its wholesale FTTP prices and warns that BT’s argument overlooks how “content providers are already investing substantially to lessen the burden on networks and improve the consumer experience” (e.g. via new content delivery / CDN arrangements). “If BT’s network cannot cope – or it cannot bear the cost of increased demand – then it should not be advocating for an unnecessarily aggressive switch to all-IP TV delivery,” added the broadcaster.

KCOM

The Hull-based provider claims to support the “concept” of Net Neutrality, but they also point out that “there has been significant growth in the market for internet access services” and these changes have, they say, resulted in “increasing demand on networks which has been accelerated by the impact of the COVID-19 pandemic … We expect that some of these impacts will be enduring.”

KCOM then suggests that the current framework “is a very blunt instrument which offers little flexibility for commercial innovation, nor does it enable ISPs to adapt to the evolving needs of their customers.” The provider then goes on to claim that “some customers may be willing to pay more for higher quality of service/enhanced capabilities in relation to particular categories of application/content (e.g., gaming) but the net neutrality framework effectively prohibits the development of these options” (i.e. they want more freedom to develop new commercial models, which could be seen as allowing some traffic discrimination).

On the flip side, they want consumers to be “given meaningful information on their usage and on the network management techniques that are deployed” by ISPs, which still isn’t provided by every internet provider (not all ISPs respect the BSG’s existing code). We agree that more transparency and wider adoption of the existing approach would be a good thing for consumers.

Curiously, though, KCOM claims that “while some traffic peaks can be anticipated, it is simply not possible for ISPs to efficiently and economically size their networks to deal with all possible events.” Sky, speaking below, appears to disagree with this perspective and, on a practical basis, we have yet to see many ISPs truly struggling to adapt to major new peaks of usage.

Sky

Interestingly, Sky (Sky Broadband), which acts as both an ISP and TV content provider (an awkward position to hold in this debate), says they “do not support the argument made by some ISPs” (e.g. BT) that the current framework is unfair because it prevents them from charging the internet companies who are responsible for the majority of internet traffic more to use their networks.

Extract from Sky’s Response

While in the UK there has been sustained growth in internet traffic and ISPs continue to invest in more network capacity to meet this growth, these costs still represent a relatively small proportion of the overall ISP cost stack for delivering internet access services and subsequently end users’ internet access bills (which remain relatively low and affordable for most). Further, the largest internet companies (and their content distribution network, CDN, partners) also bear the costs of implementing and operating networking solutions with ISPs to cache content closer to end users. These costs are passed onto the end users of the internet companies’ services.

As internet traffic continues to grow, there is no reason to believe that the current framework will not continue to support good outcomes for consumers, businesses, ISPs and internet companies. Internet companies and ISPs will continue to have a shared goal of making sure their respective products work well and this has the knock-on beneficial effect of improving the quality of delivery of other, smaller internet services. The risk with affording ISPs more scope to discriminate between sources of internet traffic is that end users’ scope to use the internet freely is diminished with ISPs favouring certain internet traffic (including their own services).

Closing Thoughts

Data usage has always grown at a fairly natural but rapid pace year-on-year, while events like COVID-19, despite being both exceptional and incredibly rare, were very well managed by the UK telecoms industry.

We’re also of the view that the advent of FTTP and 5G is not necessarily radically different from historic shifts in internet speeds and technology, such as the move from dialup to ADSL, later followed by the move to FTTC and Cable. Lest we forget that other countries have gone through the FTTP transition already and appear to have managed it without any big problems, just as ISPs always have.

However, most respondents did at least agree that there needed to be clearer guidance or rules around the Zero Rating of data traffic, albeit not always for the same reasons. Most highlighted how it helped manage situations like the COVID-19 crisis, when ISPs worked with education outlets and emergency services to offer free data usage to certain services (e.g. Oak Academy, BBC Bitesize or NHS COVID sites). On the flip side, Channel 4 is worried about the use of zero rating with other internet services, such as social media platforms. Some clarity may indeed be needed here.

Equally, there are some valid points about the realities of competition, which is to say that any internet provider choosing to impose tighter restrictions on traffic might well bleed customers to rivals who have tactically chosen to be more flexible.

At the end of the day, demand for broadband and mobile data services would not exist without internet content providers (e.g. YouTube, Netflix, websites etc.). Some ISPs may complain that the increase in related data usage from these services and others raises their costs, which is true, but that’s also the nature of the beast (a cost of doing business) and should ideally continue to be reflected in the prices we all pay as end-users.

The arguments above can, at times, seem more like an attempt by one group to shift the aforementioned extra costs on to the other group. But as we said earlier, one way or another, the consumer will still end up paying for that. We don’t envy Ofcom in having to navigate such strongly opposing views, but that is the job they exist to do and we await, with great interest, to see what they decide to do.