CJEU Provides First Ruling on Net Neutrality Regulations

20 September 2020 by

Telenor Magyarország Zrt. Jv Nemzeti Média- és Hírközlési Hatóság Elnöke, Joined Cases  C‑807/18 and C‑39/19

The CJEU has ruled, in a first for that regulation, that the use of “Zero Tariff” contracts are inconsistent with its “Open Internet” regulation (Regulation 2015/2120). The regulation “aims to establish common rules to safeguard equal and non-discriminatory treatment of traffic in the provision of internet access services and end users’ rights”. Its intention is to legally establish the principle of ‘Net Neutrality’, whereby internet access providers are prohibited from giving preferential treatment (for example, limiting access or increasing traffic speeds) to specific websites and users.

The issue in this case was whether zero tariff contracts offered by Telenor, an Hungarian internet access provider, contravened net neutrality regulation. Zero tariff contracts provide data allowances to their users, (1 GB, for instance), which the consumer is allowed to use as they please. On running out of data, typically internet access would be stopped. However, in its two zero tariff contracts, called MyChat and MyMusic, certain websites and applications did not run down the data allowance. Furthermore, even once the data allowance had been used up, the same websites and applications could still be accessed, although otherwise no internet access was provided. 

Regulation 2015/2120 enacts the principle of net neutrality. The idea behind net neutrality is that internet service providers should not be allowed to discriminate between different types of traffic in terms of the quality of possibility of service. BT, for example, should not be allowed to increase speeds to Netflix while throttling speeds to YouTube.  

According to the regulation, the intention is to “protect end users and simultaneously… guarantee the continued functioning of the internet ecosystem as an engine of innovation”. If BT were to treat Netflix or any of service preferentially, other commercial ventures relying on internet access to connect with customers would be unfairly disadvantaged. The aim, therefore, is to ensure that consumers enjoy the fruits of continued innovation while no providers are unfairly disadvantaged. The Court considered the question of whether zero tariff contracts violated the principles of the regulation by providing unlimited access to specified services, but not to the rest of the internet.

Key to the argument of the court is understanding the concept of an end user. An internet access provider’s function is to connect a consumer with a service provider of one kind or another. End users are both the consumer and the service provider (at either end of the connection). The intention of the regulation, to protect “end users’ rights”, therefore refers to both consumers and providers. 

The important areas of regulation 2015/2120 for the case were in article 3. Article 3.1 states that:

“End users shall have the right to access and distribute information and content, use and provide applications and services, and use the terminal equipment of their choice, irrespective of the end user’s or provider’s location or the location, origin, or destination of the information, content, application or service, via their internet access service.”

Article 3.2 states that the commercial agreements reached between access providers and end users “shall not limit the exercise of the rights of end users laid down in paragraph 1”.

Article 3.3, the strongest affirmation of the rights of end users to net neutrality, states that 

“providers of internet access services shall treat all traffic equally… without discrimination, restriction, restriction of interference, irrespective of the sender and receiver, the content accessed or distributed, the applications or services used or provided”. 

The rest of 3.3 details how internet access providers can use traffic management measures (speeding up or slowing down, or blocking access entirely), as long as they are used to solve technical issues to “preserve the integrity and security of the network”. However, it reiterates that only technical concerns about the functionality of the network can justify traffic management measures like these, and not commercial concerns. 

The final piece of the regulation that is significant is recital 7, which states that national enforcement bodies are empowered to intervene where commercial agreements violate end users’ rights “by reason of their scale”, suggesting that intervention is only justified by a significant material effect on end users’ rights. 

The concern of the Court was whether, by allowing unlimited access to certain websites and applications, Telenor was violating the principles of net neutrality. Telenor argued that zero tariff contracts were covered by article 3.2, as a commercial agreement, to the exclusion of 3.3. It argued that 3.3 only covered “traffic management measures implemented unilaterally by providers of internet access services”, whereas their zero tariff contracts only affected those who had entered into them. As such, the blanket ban on non-technical traffic management measures laid down in 3.3 was not applicable to their zero tariff contracts. What was necessary was to “assess [zero tariff contracts’] effects on the exercise of end users’ rights”, to identify whether they impacted on the rights set out in 3.1.

The nub of the case comes down to two issues: first, whether the provisions in article 3.2 require an impact on end users’ rights to be assessed and confirmed before article 3.1 is activated; secondly, whether 3.3 can be read purely formally as laying a blanket ban on all discriminatory treatment of traffic, whatever the actual impact on end users’ rights may be. The Court concluded that zero tariff contracts were inconsistent with the regulation in both ways.

In the first case, the Court concluded that zero tariff contracts sufficiently restricted traffic for there to be an interference with end users’ rights “by reason of their scale”. Traffic was either incentivised to certain sites and applications, before the data quotas were used up, or completely restricted, after they were used up. This was significant enough for the court to determine an interference with end users’ rights. In particular, the Court had in mind commercial services which would have been inaccessible when the data allowance was used up. As such, both 3.1 and 3.2 were engaged in this case, sufficient to demonstrate that zero tariff contracts are incompatible with regulation 2015/2120. The Court noted that arguments in this vein would require case by case scrutiny by the relevant national authorities to conclude whether end users’ rights were violated due to “scale”.

The Court also concluded that 3.3 imposed a general obligation on internet access providers to treat all traffic in a non-discriminatory manner. It reiterated that 3.3 lays down an exhaustive list of situations in which traffic management was acceptable: none of those situations described zero tariff measures. As such, zero tariff contracts are incompatible with article 3.3 as well. The Court noted that 3.3 does not lay down a requirement for an assessment of impact on end users’ rights, and as such, the reasoning from 3.1 and 3.2 was irrelevant. 

Zero Tariff contracts are popular with both service providers and consumers, but this ruling will likely spell the end of them. The Court placed significant emphasis on the protection for providers as end users. Given that part of the stated intention of the legislation is to protect the “internet ecosphere as an engine of innovation”, consumers’ interests are not necessarily front and centre. As such, this ruling may leave national authorities feeling empowered to take enforcement action against all variants of zero tariff contracts. 

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