Broadband Cable Association of Pennsylvania


February 24, 2014

Telecommunications companies in the U.S. and Europe are escalating a battle with technology firms over how Internet traffic is handled, as growth in data-hungry Web services explodes. A group of Europe's biggest telecoms, including Deutsche Telekom AG and France's Orange SA, is fighting provisions in a proposed European law aimed at enforcing net neutrality, a principle that Internet providers shouldn't discriminate against traffic from particular sources. "We fear that, if the most restrictive views on open Internet prevail, there will be a significant reduction of users' choice," said Luigi Gambardella, head of European telecom trade group ETNO, whose members have been lobbying ahead of a vote in Europe's Parliament on Monday. Telecom executives fear that some amendments to the proposed law would cripple efforts to roll out new services.

In the U.S., telecoms are likely to push the Federal Communications Commission to allow them to charge some websites to deliver content at higher quality. The regulator is expected to propose new rules this year, after a federal appeals court in January tossed out the bulk of the FCC's net-neutrality rules. Friction between tech and telecom firms on both sides of the Atlantic is rising, as they wrangle over how to divide the costs-and profits-from the vast amounts data coursing through the world's networks. The question of who will pay for upgrades is becoming more acute as a surge in data threatens to swamp mobile networks. The tension is on display this week here, where the telecom and tech worlds are gathering for the annual Mobile World Congress exhibition. Telecom executives are expected to discuss their concerns about proposed net-neutrality rules in closed-door meetings on Monday.

The rest of the gathering is more of a showcase for Silicon Valley. One of the most-anticipated events is Monday's address by Facebook Inc. Chief Executive Mark Zuckerberg. Just last week, his company agreed to buy mobile-messaging application WhatsApp for $19 billion-more than the market value of Dutch telecom Royal KPN NV. A central issue in the net-neutrality dispute is where to draw the line between the broader Internet and private services that telecom operators offer.

Telecom providers say they should be free to set aside part of their infrastructure to sell advanced services, such as high-quality video, from particular technology or content companies. The telecoms say doing so wouldn't mean blocking other providers and that the phone companies have no interest in keeping their subscribers from content they want. But tech companies and public-interest groups say such plans could lead to a two-tiered Internet, with some types of content available at top speed, but other content getting slower service if providers are unable to pay up. "Skype and other online apps have been experiencing arbitrary restrictions of use for some time now," said Jean-Jacques Sahel, policy director for Europe, Middle East and Africa at Microsoft Corp. , which owns the video-chat app. "To ensure that these bad practices stop and the Internet does not become a dirt road, we need clear rules."

In recent years, the telecom industry has pushed for companies that generate large amounts of traffic, such as Google Inc.'s YouTube, to pay for carrying traffic above a certain level. Netflix Inc. recently struck a deal with Comcast Corp. to pay the cable company to ensure that Netflix's content streams smoothly. The deal allows Netflix to connect directly with the cable company's network, instead of through middlemen. The so-called paid-peering arrangement with Comcast, which isn't subject to net-neutrality rules, shows that carriers are getting traction in their efforts to get paid for handling the growing Internet traffic.

Now the mobile Internet is becoming more of a hot spot in the net-neutrality debate. In the U.S., wireless has been largely excluded from net-neutrality rules because bandwidth is more limited and the networks are more fragile. But the mobile Web is becoming more important. Europe's proposed rules would make no distinction between mobile and fixed Internet. Wireless data traffic is skyrocketing. Mobile data traffic increased 81% world-wide last year to 18 times the size of the entire Internet in 2000, according to Cisco Systems Inc. By 2018, global mobile data traffic is expected to increase by more than a factor of 10, Cisco said.

Telecoms in Europe and the U.S. are tiptoeing toward offering advanced services from some tech and content companies, saying it shouldn't raise net-neutrality concerns. In Germany, Deutsche Telekom offers to bundle music-streaming service Spotify for 10 Euros ($14) a month on users' bills, exempting the service from caps on wireless data usage, after which users would face reduced speeds. "I think it is correct that we should be able to give to certain customers or certain services which have a higher level of urgency or performance need, a better service than others," said Vodafone Group PLC CEO Vittorio Colao.

In the U.S., AT&T Inc. this year became the first telecom to offer a sponsored data service that would allow content companies to pay for the data consumed by users accessing their websites or mobile apps, although no major content producers have signed up. A T-Mobile US Inc. venture, GoSmart Mobile, last year said it would allow customers to access Facebook free even if they weren't paying for a data plan. And FreedomPop, which resells Sprint Corp.'s service, says it is assembling a "walled garden" of mobile apps that subscribers can access free. Seven companies have agreed to pay FreedomPop to participate in the service, which is expected to be available this year.

Many people in the business expect that, despite the battles, a two-speed Internet is likely to become a reality-as will capacity concerns. "You're going to see more fights over this," said David Heard, head of the mobile business for network-testing firm JDS Uniphase Corp. "But when someone's willing to pay for something, how can you hold that back?"