Commercial practices of Internet Services Providers (ISPs) to exclude certain applications and services from being counted against customers’ data caps, a practice known as Zero-Rating, are arguably creating an economic incentive for users to prefer zero-rated apps and services. These commercial behaviors are under scrutiny on both sides of the Atlantic, but the way regulators are actually tackling the issue differs. While in the U.S., California’s net neutrality law prohibits ISPs from engaging in discriminatory Zero-Rating, the European Union’s net neutrality law only sets up a general obligation of equal traffic treatment.  AT&T’s recent decision to end its Zero-Rating program across the U.S. shows that U.S. ISPs are ready to adapt their commercial strategies to strict net neutrality rules.

The European Union (EU) is dealing with Zero-Rating through the prism of the first court case from the Court of Justice of the European Union (CJEU) on the topic.

The European Net Neutrality Rules Protects End Users

The EU’s net neutrality rules have been enacted through the Net Neutrality Regulation (EU 2015/2120). The Net Neutrality Regulation covers the commercial practices of ISPs towards end users on the one hand (primarily focusing on the protection of the rights of end users to access and distribute content, and to use and provide services via their internet access service), and lays down a general obligation of equal and non-discriminatory treatment of traffic (i.e., without discrimination and regardless of the apps or services used) by ISPs on the other hand. “End Users” are defined broadly as all internet users.

The Net Neutrality Regulation is silent on the legality of Zero-Rating. In a recent case (Telenor Magyarország Zrt. v. Nemzeti Média- és Hírközlési Hatóság Elnöke, CJEU, C-807/18, C-39/19, Sept. 2020), the CJEU considered both the Net Neutrality Regulation and Zero-Rating for the first time. In a very EU-minded way, the judgment showed the CJEU’s willingness to apply the principle of net neutrality to the detriment of ISPs’ commercial strategies. The outcome is pretty blunt in the context of the case: Zero-Rating does not just eventually adversely affect End-Users’ rights, it is unlawful, per se.

Telenor’s Zero-Rating Packages….

So, what does the CJEU have against Telenor’s offer? Telenor, a Hungarian telecom company, offered two internet packages, which applied Zero-Rating to specified apps and services. The two packages, “MyChat” and “MyMusic” enabled subscribers to use a number of favored apps without having the data traffic generated by those apps counted in the data caps. In addition, once the data cap was reached, subscribers could continue to use Zero-Rated apps with unrestricted access, but other apps and services were slowed down or blocked.

….Gets A Zero Score From The CJEU

In its judgment, the CJEU held that “MyChat” and “MyMusic” violated the EU Net Neutrality Regulation in two respects. First, the CJEU found that the combination of no tariff for favored apps and services with the blocking and slowing down of other apps and services undermines the exercise of end users’ rights. Second, the CJEU found that the two packages violate the obligation of equal traffic treatment per se, meaning that no assessment of the effects of the Zero-Rating practices was needed.

Additional features of the ruling include:

  • The Broader, the Better.” End users include “all legal entities or natural persons using or requesting a publicly available electronic communications service.” Both private individuals and professional providers of apps and services benefit from the EU’s net neutrality related rights.
  • The Stricter, the Better.” The CJEU used a strict interpretation of net neutrality rules for the benefit of end users’ rights. The Court found that Telenor’s practices limit the exercise of end users’ rights because they increase the use of the favored apps and reduce the use of other apps. In particular, the CJEU considered the cumulative effect of Zero-Rating and slowing down/blocking practices and Telenor’s market position to assess the limitations of end users’ rights. This tough assessment even led the Court to consider that the practices undermine the “very essence of end-users’ rights”.
  • The Easier, the Better.” The Court found that no assessment of the effects of Telenor’s practices on end users was required, as those practices were unlawful per se under the general obligation of equal traffic treatment, as soon as they are based on “commercial considerations” (i.e., if they are not based on objective differences between apps and services.)

Wide scope, strict rules and two legal bases to pressure you out on the EU side; if that’s not cornering, it puts ISPs in a pretty tough place to be to shoot on the goal (very similar to the some of the US ways that seek to exclude players from the pitch). Rewind or repeat?