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Dutch prohibition on zero-rating deemed invalid

An update on Net Neutrality Rules

25 July 2017

In a judgment of 20 April 2017, the District Court of Rotterdam ruled that the outright prohibition on price differentiation under the net neutrality rules in the Dutch Telecommunications Act contravenes the EU Net Neutrality Regulation and is therefore invalid. On that basis, the Court struck an order issued by the Netherlands Authority for Consumers and Markets against T-Mobile Netherlands to cease its offering of zero-rated access to music streaming services. The Dutch government has now indicated that it will amend the rules.

Background

In this digital age, unencumbered internet connectivity and unrestricted access to online information, applications and services are considered essential to the exercise of fundamental rights such as the freedom of expression and information and the freedom to conduct a business, which are enshrined in the European Convention on Human Rights and the European Charter of Fundamental Rights. Through traffic management, the party enabling end-user access to the internet – the internet access provider – is technically in a position to determine the manner in which (and even extent to which) online information and applications can be accessed. It is this position of control that has led legislators around the world to enact rules governing net neutrality, which call for an equal treatment of internet traffic regardless of its content, origin or destination. 

Striking a balance between the protection of the aforementioned end-user rights and the commercial interests of internet access and content providers is a politically sensitive exercise. Under the questionable label of 'Restoring Internet Freedom', for example, the Federal Communications Commission in the USA is in the midst of rolling back the fairly strict net neutrality rules that were implemented under the Obama administration in 2015. In the Netherlands, on the contrary, the Dutch government has – after entry into force of the EU Net Neutrality Regulation (Regulation (EU) 2015/2120; the Regulation) – upheld the existing prohibition imposed on internet access providers under the Dutch Telecommunications Act (the DTA), forbidding them to use different rates for their internet access services depending on the online application or service that is being accessed. The validity of this prohibition in light of the Regulation is the subject of the present judgment of the Rotterdam Court.

The judgment

The present judgment is a ruling on an appeal filed by T-Mobile Netherlands (T-Mobile) against a decision of the Netherlands Authority for Consumers and Markets (the ACM) of 9 December 2016 in which ACM ordered T-Mobile to cease its offering of 'Data-Free Music' under pain of a penalty of 50,000 Euro per day. In its Data-Free Music offering, T-Mobile grants its mobile subscribers access to certain music streaming services without deducting the related data usage from their data bundles, a practice called zero-rating. 

The ACM contended that this zero-rating constitutes a violation of Articles 3(2) and 3(3) of the Regulation and, in particular, also of the prohibition on tariff differentiation under the DTA. According to ACM, Article 3(3) of the Regulation comprises a general prohibition on discrimination by internet access providers, including in respect of their commercial practices and the agreements they conclude with end-users as referenced in Article 3(2) of the Regulation. According to the ACM, the prohibition on price differentiation in the DTA is merely a clarification of this general non-discrimination provision. 

In the appeal proceedings, T-Mobile acknowledged that its zero-rated music offering is indeed a violation of the DTA's prohibition on price differentiation. T-Mobile argued, however, that the statutory prohibition as such is invalid, given that the EU Net Neutrality Regulation does not contain an outright ban on zero-rating and the Dutch legislator is not authorised to maintain stricter rules in this respect. The Rotterdam Court found in favour of T-Mobile. The principal considerations leading to its judgment are discussed in the below.

Authority to supplement or clarify the Net Neutrality Regulation

The Court points out that, under Article 288 of the Treaty on the Functioning of the European Union, an EU regulation is directly applicable in each Member State and does not, as a rule, permit national transposition measures. A Member State may not enact national laws to regulate what is already covered in an EU regulation, and it may only enact implementation measures if the EU regulation provides for a specific basis to do so. Article 5(1) of the Net Neutrality Regulation, which charges national regulatory authorities with the responsibility of monitoring and ensuring compliance with Articles 3 and 4 of the Regulation and permits them to impose on internet access providers requirements concerning technical characteristics, minimum quality of service requirements and other appropriate and necessary measures, does not however, according to the Court, provide a basis to implement supplemental national legislative measures in respect of the scope of the non-discrimination provisions of Article 3 of the Regulation. The Court held that a national legislator is also not permitted to clarify any unclear provisions in an EU regulation by way of national legislative measures. 

Scope of Article 3 of the Net Neutrality Regulation

The Court furthermore determined that the Regulation does not contain an outright ban on zero-rating, despite the efforts of the Dutch government to include the strict Dutch price differentiation prohibition in the Regulation during its negotiation. According to the Court, the non-discrimination obligation set forth in the first subparagraph of Article 3(3) of the Regulation, when read in conjunction with the second and third sub-paragraphs of that provision, should be understood to concern measures taken in respect of internet traffic and not measures (such as pricing arrangements) in respect of end-users. The same follows from recitals 8 and 9 of the Regulation which underpin Article 3(3), both of which evidently concern traffic management and not the determination of access rates. The Court points out that the provisions of the Regulation which do address commercial (pricing) conditions for internet access services – Article 3(2) and the underlying recital 7 of the Regulation – do not contain any outright prohibition on zero-rating. In addition, the Court remarks that BEREC (the Body of European Regulators for Electronic Communications) has issued guidelines on the implementation of the Regulation (BEREC Guidelines), which do not prohibit zero-rating but provide a framework to assess on a case-by case basis whether zero-rating violates the objectives of the Regulation. Although the Court acknowledges that the BEREC Guidelines are not binding on EU Member States, they do support the contention that the Regulation does not contain a outright ban on zero-rating.

All in all, the Court considered it beyond doubt that the Regulation, and in particular Article 3 of the Regulation, does not comprise an outright prohibition of price discrimination with regard to internet access services, and saw no need to refer any questions on the matter to the EU Court of Justice (thus considering the matter to be an 'acte claire'). Accordingly, the Court deemed the price differentiation prohibition under the DTA to be unmistakably in conflict with the Regulation, and held that the Dutch legislator had apparently acted "against its better judgment" by maintaining the prohibition in spite of the text of and background to Article 3 of the Regulation. Referencing case law of the EU Court of Justice (Case C-429/09; Günter Fuß v. Stadt Halle), the Court remarked that the principle of sincere cooperation under Article 4(3) of the Treaty on European Union (also known as the loyalty principle) obliges ACM to apply Article 3 of the Regulation despite contradicting national legislation.

Analysis

While the Regulation clearly does not permit the use of traffic management measures to treat certain applications and services more favourably in a technical sense for commercial considerations (eg, by blocking or throttling access to competing applications and services), the Rotterdam Court's judgment confirms that the net neutrality rules do not contain an outright prohibition for internet access providers to offer commercial incentives to promote the use of certain online applications and services above others, for instance by applying zero-rating. As is borne out by the BEREC Guidelines, a case-by-case assessment is required. In the Regulation (recital 7), the line is drawn where (internet access) agreements or the commercial practices of internet access providers would limit the end-users' exercise of their rights to access and distribute information and content, and to use and provide applications and services of their choice, in the sense that such agreements and commercial practices would "by reason of their scale, lead to situations where end-users' choice is materially reduced in practice". The Regulation (recital 7) points out that the assessment of agreements and commercial practices should therefore take into account the respective market positions of both the internet access providers and the content providers involved, and discerns cause for national regulatory and other competent authorities to intervene when agreements or commercial practices would result in the undermining of "the essence of the end-users' rights". 

This makes sense, recognizing that the principal aim of the net neutrality rules is to safeguard end-users' freedom of choice and not to operate as an instrument of competition regulation to ensure a commercially level playing field. Market forces may operate freely unless this would compromise the essence of end-users' rights. One might imagine, as also exemplified in the BEREC Guidelines, this can be the case if agreements are struck between access providers and providers of online content, applications or services who are so dominant (in terms of scope of operations, rights to content, financial power or otherwise) as to entirely push from the market competing content, applications or services providers, leading to a de facto limitation of end-users' online freedom of choice. Given this commercial "leeway" and in view of the obligation for Member States to align their national laws with relevant provisions of the Regulation, this judgment understandably determines that the Dutch national rules which strictly prohibit internet access providers to differentiate the charges for their internet access services depending on the online services or applications that are offered or used through the access services are not compatible with the Regulation.

What next?

The ACM has in the meantime announced in a press release of 23 May 2017 that it will not appeal the Court's judgment and will refrain from enforcing the price differentiation prohibition under the DTA. On 31 May 2017, in response to questions posed in Dutch Parliament, the Dutch Minister of Economic Affairs, responsible for telecommunications matters, stated that preparations are underway to amend the DTA to conform to the Court ruling. At the same time, the ACM appears to be investigating whether, on the grounds set forth in the Regulation, T-Mobile's 'Data Free Music' offering might nevertheless be in breach of the Regulation. 

A previous version of this article was published in Leading Internet Case Law.

For further information on the EU Net Neutrality Regulation, see our client briefing of June 2016 and our contribution on the BEREC Guidelines on Talking Tech.