The news last week that Telecommunications companies in Europe are looking to activate ‘ad-blocking’ software for customers on an opt-in basis has serious implications for digital media that monetise from advertising. It also presents a challenge to the concept of ‘net neutrality’ as a carrier could determine what a user does and does not see (e.g. strip out advertising from 3rd party/publishers and replace with their own).

‘Net neutrality’ what is it and why is it a big deal?

‘Net neutrality’ refers to the idea that all internet traffic should be treated equally by service providers (Telcos) and that there should not be any ‘fast lanes’ or other biases that give preferential treatment to paid or other types of content. The two sides of the debate include content and application providers (e.g. Google, Amazon, Apple) who are in favour of net neutrality and communications service providers/operators claim that they have invested massive capital into their broadband networks and that they should be allowed to recoup that investment by offering some form of prioritisation to their customers – and accuse content providers of seeking a ‘free lunch’ at their expense. In the US context, the proposed ad-blocking measures by operators in Europe would be considered a violation of FCC regulation which mandate that broadband providers may not:

1) “block access to legal content, applications, services, or non-harmful devices,”

2) “impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices,” including throttling

3) engage in paid prioritization, where they “favor some lawful Internet traffic over other lawful traffic in exchange for consideration.”

But these formal regulations do not exist (yet) in most European countries or other parts of the world.

The European context

In Europe, both electronic communications providers and end-users face inconsistent rules on net neutrality. This leads to uneven levels of protection and a variety of diverging rules in different Member States. The European commission has written:

There are no clear rules on net neutrality today at EU level, leaving 96% of Europeans without legal protection for their right to access the full open internet.

In this environment, ad-blocking measures by telcos could be effective without any legal ramification. If wholesale ad-blocking measures are taken by operators it is likely to have the effect of bringing ‘net neutrality’ to the top of European regulation agenda.

The Netherlands has already instigated its own changes to net-neutrality laws with minimal impact on consumers, media or operators. The Dutch rules also allow for some premium deals between operators and services like Netflix. These agreements are supposed to be tightly restricted under the new FCC regulations in the US. One of the factors called out in studies of the ‘Netherlands experience’ is the competitive nature of the operators that serve the broadband market. This competition, more than ‘net neutrality’, has forced companies to compete solely on price and speed — and not on which services that come bundled with monthly cellphone or broadband packages.

Implications in Australia

In the Australian context, ‘net neutrality’ has some nuances that don’t exist in other parts of the world (e.g. Europe). For example there exists a wholesale pricing mechanism, transparency of network traffic due to the NBN/Telstra wholesale arrangements, consistent consumer protection laws and higher levels of competition. This is not to say that the concept of ‘net neutrality’ won’t be tested. And in reality… it already has.

There are many examples of ‘Zero Rating‘ in Australia where Telcos offer free data for certain sites (e.g. ABC iView) which is a form of preferential treatment of content. In recent times, Optus and Iinet have allowed customers to gain 6 months access to Netflix for free subsequent to Optus (Australia’s second largest carrier) considering offering OTT players like Netflix preferrential treatment on their network for a fee to ensure higher quality standards for the Netflix content.

These ‘Zero Rating’ measures push the edges of ‘net neutrality’. Wholesale ad-blocking by Australian carriers will no doubt ask similar questions of the stance on ‘net-neutrality’ by the government and consumers.

Who owns the internet now? 

The answer in Australia is that it is precariously neutral (for now) – a delicate balance between users, content providers and content distributors. In an ‘ad-blocking’, content deal and ‘zero rating’ world, neutrality is likely to swing in favour of operators (the distributors). If this is best for users and for innovation net neutrality protection and regulation may take sideline to outcomes driven by competition and user demands.