Internet neutrality – EU court judgement in Telenor Hungary vs Nemzeti Media (c-807/18 and c-39/19) – Zero tariff and end user definition



Published 06 October 2020
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15 September 2020 the EU court, sitting as the Grand Chamber, interpreted for the first time Regulation 2015/2120 ("OIR" – Open Internet Regulation), which sets out the fundamental principle of an open internet ("net neutrality").

Telenor Hungary, which is no longer part of the Telenor group, provides internet access services in particular. The services offered to its customers include two packages ("My Chat" and "My Music") with preferential access (known as "zero tariff"). The specific feature of those packages is that the data traffic generated by certain specific applications and services (Facebook, Facebook Messenger, Instagram, Twitter, Viber and Whatsapp in My Chat; Apple Music, Deezer, Spotify and Tidal – and six radio services in My Music) does not count towards the consumption of the data volume purchased by customers. In addition, once that volume of data has been used up, those customers may continue to use those specific applications and services without restriction, while measures blocking or slowing down data traffic are applied to other applications and services.

The Hungarian National Media and Communications Office adopted two decisions by which it found that those packages did not comply with the general obligation of equal and non-discriminatory treatment of traffic laid down in OIR article 3(3) and that Telenor had to put an end to those measures. Telenor appealed the decisions to the Budapest High Court, which decided to refer the matter to the EU court for a preliminary ruling, in order to ascertain how to interpret and apply OIR. The key parts of OIR article 3 read as follows:

  1. End-users shall have the right to access and distribute information and content, use and provide applications and services, and use 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. [2nd paragraph omitted]
  2. Agreements between providers of internet access services and end-users on commercial and technical conditions and the characteristics of internet access services such as price, data volumes or speed, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the rights of end-users laid down in paragraph 1.
  3. Providers of internet access services shall treat all traffic equally, when providing internet access services, without discrimination, restriction or interference, and irrespective of the sender and receiver, the content accessed or distributed, the applications or services used or provided, or the terminal equipment used. [additional paragraphs omitted]

After providing a series of general clarifications of the meaning of the concepts of "agreements", "commercial practices" and "end users" contained in OIR, the Court found that the conclusion of agreements, by which given customers subscribe to a package combining a zero tariff and measures blocking or slowing down the traffic linked to the use of "non-zero tariff" services and applications, is liable to limit the exercise of end users’ rights, within the meaning of OIR article 3(2). Such packages are liable to increase the use of the favored applications and services and, accordingly, to reduce the use of the other applications and services available. Furthermore, the greater the number of customers concluding such agreements, the more likely it is that, given its scale, the cumulative effect of those agreements will result in a significant limitation of the exercise of end users’ rights, or even undermine the very essence of those rights.

It is interesting to note that content providers are considered "end users" as the term is used in OIR article 3, see the court's reasoning in sections 36-39. The EU courts refers to the definition of "end user" in the Framework directive (Directive 2002/21) article 2 (n):

“end user” means a user not providing public communications networks or publicly available electronic communications services;

The EU court goes on to conclude that "end users" include both natural and legal persons, hereunder professional entities who rely on internet access to distribute content, applications and services.  Spotify and other content providers do not provide electronic communications services ("ECS"). This is in line with the basic differentiation between ecom networks and services regulated in ecom legislation and content regulation is other forms of legislation. ECS have the following characteristics:

  1. Provided to another external party on commercial basis
  2. Comprises mainly the transmission of signals
  3. The ECS provider has the power to control the transmission

The services of the content providers do not mainly comprise of transmission of signals and they do not have the power to control the transmission. Facebook, Spotify etc are therefore not providers of ecom services. Services where there is some doubt include e-mail and WiFi offered in cafés. VoiP has in most countries been found not to be an ecom service, whereas VoiP with interconnectivity with ordinary telephone numbers has been found to be an ecom service. As the term end user as defined in the Framework directive includes all actors who are not offering ecom services, Facebook and Spotify are end users as defined in ecom legislation, odd as it may sound. The EU court has implicitly confirmed that OIR shall be considered ecom legislation and that ecom definitions, even when contained in other pieces of ecom legislation, apply to the OIR. It is important to keep this fact in mind when interpreting the OIR. It is also worth noting that the concept of ECS provider under European law is very limited, whereas the same term used under US law is very wide. This has been made clear in recent analysis of the Schrems II decision and US' authorities investigation powers under Section 702 of the Foreign Intelligence Surveillance Act (FISA). There is apparently little doubt that section 702, which applies only to ECS providers as defined in US law, applies to an actor such as Facebook.      

Zero tariff service plans are used in a number of markets, including in Norway. Early observers presented the EU court's judgement as a total ban on all such zero tariff plans. This prompted the Norwegian Communications Authority ("Ncom") on 23 September 2020 to issue a statement pointing out that the judgement deals only with one specific zero tariff plan where the zero tariff continues after the data package has been used up. This is indeed correct, as the conclusion of the EU court was as follows: (our underlining)

Article 3 of [OIR] must be interpreted as meaning that packages made available by a provider of internet access services through agreements concluded with end users, and under which (i) end users may purchase a tariff entitling them to use a specific volume of data without restriction, without any deduction being made from that data volume for using certain specific applications and services covered by ‘a zero tariff’ and (ii) once that data volume has been used up, those end users may continue to use those specific applications and services without restriction, while measures blocking or slowing down traffic are applied to the other applications and services available:

  • are incompatible with Article 3(2) of Regulation 2015/2120, read in conjunction with Article 3(1) of that regulation, where those packages, agreements, and measures blocking or slowing down traffic limit the exercise of end users’ rights, and
  • are incompatible with Article 3(3) of that regulation where those measures blocking or slowing down traffic are based on commercial considerations.

Ncom has considered the use of zero tariff plans used in the Norwegian ecom market and has, although hesitantly, as late as 22 June 2020 accepted the use of such plans in Norway. The key difference between the plans in Norway and the matter before the EU court is that the Norwegian plans do not provide service after the data quotas in the plans have been used up. Under the same strict logic, it may be concluded also that the EU court considered only differentiation with regards to data volumes and not for example differentiation with regards to data speeds. It could therefore be argued that the EU court's decision does not extend to tariff plans where selected services are prioritized with regards to speed offered over the network and that other services may be slowed down.

The fact that the EU court limited its conclusion to what were the facts in the specific case, does not however entail that the EU court has cleared such other plans. The key reason why Ncom has not struck down on zero tariff in the Norwegian market is that the growth of zero tariff is primarily among customers with larger data packages (above 10 GB/month). The logic of Ncom is that customers with zero tariffs who also have a large data package will still have room for use of the services of content providers not included in the zero tariff plan. It would however in this author's opinion be wise by Ncom to reconsider this approach. The key issue is one of discrimination, which will be the effect as long as data packets sold contain a limit on the use of some services and not on others. Data usage is associated with and correlates to the degree of digital development of a country. High average data usage per capita means that users consume digital content, which is required for a thriving digital economy. Data usage in the mobile network in Norway is very low. The average data consumption per capita in Norway is  only 5.6 GB/month, half the volume compared to Sweden, 42 % of the volume in Denmark and only 15.4% of the volume in Finland. Prices in Norway are also higher than in our neighboring countries. Zero tariff mobile plans has the effect of shifting use of digital content to providers included in zero tariff data packages and disincentives use of alternative content providers. This ultimately stifles competition between content providers. The combination of high prices and zero tariff price plans contribute to low data usage in Norway and threatens digital innovation and development of digital markets in Norway.

Zero tariff price plans furthermore reduces competition between mobile services providers. The Norwegian mobile market has been considered duopolistic. A key regulatory remedy has been to mandate access to mobile networks to resellers of mobile services, who shall be able to set their own prices and apply innovative marketing. The resellers enter into access agreements with the network owners and pays a wholesale price per GB of data traffic. There is no concept of zero tariff whole prices in these wholesale agreements. A mobile reseller will have to assume a large risk to offer end user price plans with zero tariff as long as its own cost is calculated on the basis of data volume, without distinction on which content provider's traffic is transmitted. Widespread use of zero tariffs will therefore have the effect of preventing, or at least discouraging, resellers from matching zero tariff price plans offered by the mobile network owners. The result will be reduced competition in the end user markets, and ultimately higher prices and reduced digital innovation. It would therefore be wise of the Ncom to reconsider its approval of zero tariff price plans in Norway.