On 15 September 2020 the Court of Justice of the European Union (“CJEU”) handed down an important judgment[1] concerning “zero-rating”, a practice where providers of Internet access services do not count the data traffic related to use of a specific application or class of applications towards the general data cap offered to end-users as part of an Internet package. The practice of zero-rating has recently raised serious questions as to its compliance with provisions of Regulation 2015/2120.[2] The judgment (see: link) provides some guidance in this regard.

Background

Telenor, a Hungarian Internet access provider, offered its customers two packages (MyChat and MyMusic) where the data traffic generated by certain applications and services did not count towards the data volume the customers purchased. In addition, once that volume was used up, customers could continue to use those specific applications and services without restriction, while the other applications and services available to the end-user were blocked or slowed down.

The Hungarian regulator (Nemzeti Média- és Hírközlési Hatóság) found that both packages involved traffic-management measures that were incompatible with the obligation of equal and non-discriminatory treatment laid down in Article 3(3) of Regulation 2015/2120. Following an appeal brought by Telenor, the Hungarian court adjudicating the case decided to refer four questions to the CJEU for a preliminary ruling. Those questions could be summarized as follows:

• Must the decisions subject to scrutiny be examined in light of Article 3(2) of Regulation 2015/2120 (first question) or are they governed by paragraph 3 of that provision (second question)?
• If Article 3(3) of Regulation 2015/2120 is applicable, does that provision impose a general, objective and unconditional prohibition (third question), and, if so, does this rule out the need to conduct a circumstantial evaluation in order to determine whether the end-users’ rights have been infringed (second and fourth question)?

Relevant legislation

Central to this case are the first three paragraphs of Article 3 of Regulation 2015/2120/EU:

“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. (…)

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.

The first subparagraph shall not prevent providers of internet access services from implementing reasonable traffic management measures. In order to be deemed to be reasonable, such measures shall be transparent, non-discriminatory and proportionate, and shall not be based on commercial considerations but on objectively different technical quality of service requirements of specific categories of traffic. Such measures shall not monitor the specific content and shall not be maintained for longer than necessary.

Providers of internet access services shall not engage in traffic management measures going beyond those set out in the second subparagraph, and in particular shall not block, slow down, alter, restrict, interfere with, degrade or discriminate between specific content, applications or services, or specific categories thereof, except as necessary (…)”.

What did the CJEU decide?

The CJEU held that zero-rating practices, such as those applied by Telenor, if based on commercial considerations, are incompatible with the principle of net neutrality established in Article 3(3) of Regulation 2015/2120.

According to the CJEU, the traffic management measure applied by the provider of Internet access services is based on such “commercial considerations”, in particular, when it does not rely on objective differences and results in the content, applications or services offered by the various providers not being treated equally and without discrimination.

The CJEU emphasized that in order to make that finding of incompatibility with the principle of net neutrality, there is no need to assess the effect of zero-rating on the exercise of end-users’ rights. As a result, where a national regulatory authority considers that a particular form of conduct is incompatible in its entirety with Article 3(3) of Regulation 2015/2120, it may refrain from determining whether that conduct is also incompatible with Article 3(2) of that regulation.

At the same time, however, the CJEU found that zero rating combining a “zero tariff” with measures blocking or slowing down traffic related to the use of the remaining applications or services is indeed liable to limit the exercise of end-users’ rights within the meaning of the regulation.

Such packages are liable to increase the use of favored applications and services and, accordingly, to reduce the use of the other applications and services available, having regard to the measures by which the provider of the internet access services makes that use technically more difficult, if not impossible. Furthermore, the greater the number of customers concluding subscription agreements to such packages, 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.

What are the implications of the judgment?

The judgment of the CJEU delivered in Telenor is the first preliminary ruling addressing the issue of zero-rating. Although the judgment is supposed to strengthen competition on the market and provide consumers with a wider choice of services, its opponents argue that there are still no studies unequivocally confirming the hypothesis about the negative impact of zero-rating practices on competition between providers of content, services and applications on the Internet. There are also voices that zero-rating itself may be beneficial to the consumer as it alleviates at least to some extent the inconvenience related to restricting Internet access by data transfer limits.

Despite controversies, the CJEU judgment seems to be in line with BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules.[3] In those guidelines, issued following the adoption of Regulation 2015/20120, BEREC pointed out that a zero-rating offer where all applications are blocked (or slowed down) once the data cap is reached except for the zero-rated application(s) would infringe Article 3(3) first (and third) subparagraph of that regulation.

While the judgment confirms that it is prohibited to block or slow down traffic related to the use of applications and services other than zero-rated ones when the user's data cap is reached, it does not prevent providers of Internet access services from offering zero-rated applications or services as long as they too are blocked or throttled when the data cap is reached. However, as this type of zero-rating also creates an economic incentive to use particular applications or services instead of competing ones, it may still pose serious regulatory risks.

Although the judgment does not expressly refer to zero-rating practices where the providers of Internet access services apply or offer zero-rating to an entire category of applications (e.g. all video or all music streaming applications), it seems that such zero-rating models may also be prohibited as long as they are based on commercial considerations.

Notwithstanding the above, the CJEU ruling does not exclude the use of certain traffic management measures by the providers of Internet access services. However, that possibility is subject to the condition, inter alia, that such measures are based on “objectively different technical quality of service requirements of specific categories of traffic”, and not on “commercial considerations”.

What is more, derogation from the obligation of equal treatment of traffic may still exceptionally take place in the cases strictly specified in the third subparagraph of Article 3(3) of Regulation 2015/2120, e.g. when it is necessary to prevent impending network congestion. This issue became particularly important at the beginning of the coronavirus pandemic due to the increased demand for network connectivity. In the joint position issued at that time[4] the European Commission and BEREC explained that the situation could justify the application of exceptional traffic management measures.[5]

What actions need to be taken?

The providers of Internet access services across the EU should review their Internet packages to bring them into line with the requirements of the net neutrality principle. This will require refraining from zero-rating practices based on commercial considerations, in particular those that involve blocking or slowing down traffic related to the use of applications and services (or categories thereof) other than zero-rated ones when the user's data cap has been reached.

1. Judgment of 15 September 2020, C-807/18 and C-39/19 Telenor Magyarország Zrt. v. Nemzeti Média- és Hírközlési Hatóság Elnöke.
2.  Regulation 2015/2120/EU of the European Parliament and of the Council of 25 November 2015 laying down measures on open Internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union.
3. BEREC Guidelines on the Implementation by National Regulators of European Net Neutrality Rules, BoR (16) 127.
4. Joint Statement from the Commission and the Body of European Regulators for Electronic Communications (BEREC) on coping with the increased demand for network connectivity due to the Covid-19 pandemic, BoR (20) 66.
5. It is interesting to note that following the outbreak of coronavirus in Poland, the Polish telecom act was amended and now provides that the use of websites of public finance units or other websites specified in the list kept by the minister competent for computerization does not affect the subscriber's use of the data transmission limit, unless the subscriber is abroad and is visiting those websites when using international roaming services.