Last week the Body of European Regulators for Electronic Communications (BEREC) presented its guidelines for national regulatory authorities to implement the EU’s Open Internet rules. While the EU may have agreed on rules, in practice, it is BEREC's interpretation that decides what is allowed. BEREC has an expansive interpretation of net neutrality (a term never used in the EU rules), has introduced services to regulate that are not found in the official EU rules, and seeks to scrutinize ways that operators can earn revenue in future.
This is particularly bad news for mobile network virtual operators or MNVOs, which don’t own their networks, but need the ability to differentiate themselves to different market segments. This note describes the efforts of a number of important niche MVNOs. We describe a variety of MNVOs service specific communities, including military veterans, low-income inner city communities, and the lesbian, bisexual, gay and transgender (LBGT) community. However this analysis applies to a variety of niche, ethnic, religious, and other communities which wish to use creative business models and unique content. The analysis show that their growth will be imparied if BEREC’s implementation guidelines don’t change. Essentially the regulations and their interpretation will cement the market positions of Google and Apple, those companies which own and operate the apps stores which are the heart of the mobile content industry.
Net neutrality advocates claim that rules are needed to stop operators from blocking for example, gay content. Strand Consult knows of no operator that would willingly do that—however a government would. In fact as this research note shows, operators would be interested to promote gay content, particularly to those segments which desire it. The LBGT is almost a $1 trillion market in the US alone. In 1988 the Wall Street Journal called it a dream market because of its size and buying power, brand loyalty, influence, and economic resiliency. Reports suggest that upwards of 70% of this community would be willing to pay a premium for products and service that support LBGT life. Indeed Gay Mobile was launched in Denmark, the first country in the world to recognize same-sex unions.
Strand Consult has published a series of research notes and reports on net neutrality, including the report Understanding Net Neutrality and Stakeholders' Arguments. In addition to its expertise on net neutrality/Open Internet, Strand Consult has for many years been published the most information about the MVNO market. The new rules which make de facto bans on zero rating by subjecting operators to a multi-part pre-approval strategy will fall especially hard on MNVOs, those firms that like to take advantage of marketing strategies such as zero rating and sponsored data to distinguish themselves.
As comments of BEREC Chair Wilhelm Eschweiler revealed in the proceeding, BEREC selects its stakeholders based on the “best arguments”, not the best evidence. Net neutrality activism in the EU, largely funded by American Internet companies and foundations, has developed compelling, emotional arguments. It employs academics from Harvard and Stanford, one of which BEREC invited to develop its guidelines to implement net neutrality. Network operators, on the other hand, have not invested time or resources to develop compelling policy arguments. Moreover, MVNOs, started by a range of entrepreneurs, lack a trade association to advocate for its interests. Operators assume, foolishly, that BEREC will take a rational, evidence-based approach. The reality is that consumers increasingly enjoy mobile connectivity and ever falling prices, which leads to the conclusion of less regulation. But BEREC will not take the reality into account. Nor will BEREC consider the overwhelming academic conclusions that net neutrality has ambiguous, if not negative, effects for the Internet ecosystem.
BEREC's primary concern is to look good to internet activists. Seeing the mob fiasco which overwhelmed the FCC in 2014 during its Open Internet consultation, BEREC capitulated to the net neutrality lobby from the start, giving groups Save the Internet, Access Now, and EDRi the interpretations and provisions they want in the guidelines These groups will be sure to keep the pressure on BEREC over the the next five weeks to ensure that BEREC does not adopt a more reasonable approach. Google should send a big thank you to BEREC for the protections it wins for its market share and future revenue, which more than compensates for the antitrust fine that Margrethe Vestager and DG Comp could muster against the global giant. Some $200 million has been spent by American foundations in net neutrality advocacy over the eyars, effectively protecting their portfolios heavy on Google stock. Google alone has spent at least USD 1.6 million on the three leading EU net neutrality advocacies in the last 5 years, as their donor lists mention.
Case: Gay Mobile - a concept which could succeed in many parts of the world but faces regulatory barriers
In 2005 Strand Consult described how the successful Danish MVNO CBB together with entrepreneurs from the LBGT community launched Gay Mobile - a concept that would likely do well should in countries such as the US and Brazil with large and active LGBT communities.
Such community-based MVNOs are willing to zero rate content which may be important, for example websites for LBGT non-profit organizations and information on LBGT rights. In addition many businesses would like to sponsor LBGT internet access in exchange for the opportunity to market their goods and services. Moreover gay consumers could have a mobile subscription in which they earn points for visiting particular websites, points which could be redeemed to reduce the cost of mobile service; to consume goods and services offered by LBGT-friendly vendors; or to donate to LBGT non-profit organizations, similar to Visa’s Equality Card.
Strand Consult fully supports these important developments for consumers to find content and access that reflect their particular preferences, but sees many regulatory and discriminatory barriers will inhibit the growth of this diversification in the market, perversely because of restrictive “open interent” rules. These net neutrality rules will likely prohibit operators from packaging mobile services for the LBGT community, for example providing specialized content, goods and services.
Strand Consult is concerned not just about the negative impacts that could befall the LBGT community, but any number of communities. This example applies to Ay Yildiz in Belgium (Base) and E-Plus in Germany, operators that have specific strategies for Turkish-speaking users. Regulations adopted by the EU over the years have commoditized telecommunications, forcing users to select service based on parameters for speed, volume, and price—which ironically serve to entrench the power of the incumbents, those with the largest networks and the ability to compete on prices. But this is detrimental to MVNOs and sub-brands which increasingly need to differentiate themselves through marketing strategies, as overall prices have fallen so low. This also marginalizes community and entrepreneurial efforts to promote specific content and services to affinity groups, obliging them to use the mainstream platforms such as Google Search and Google Play, which are also dominated by giant content providers, relegating users to find their interest on the far end of a long tail.
Defense Mobile is an MVNO focused on the millions of veterans in the USA and gives 10% of its profits to programs for veterans’ families. It also addresses a problem that some two-thirds of veterans fail to take advantage of state and federal government benefit programs for which they are entitled (health, education etc) because they don't have a way to find out about them and because a comprehensive list can't be found in Google. Defense Mobile operates a proprietary app, Milisource, that helps subscribers search through almost 1000 programs and operates a call center staffed entirely by veterans. Defense Mobile is an MVNO which could add additional value to its subscribers through free and sponsored data on important topics for veterans, but like many MVNOs, cannot afford the regulatory costs of case by case adjudication for every beneficial program it wants to offer. So its subscribers are denied improvements.
Some BEREC supporters claim that zero rating might be allowed if all of the content in the same class or category is zero rated or if all operators do the same practice But this removes the competitive differentiator for MNVOs if they are the only player in a market offering the service. Strand Consult expects that this will be a difficult determination, and will force BEREC into dangerous judgement calls. Consider the LBGT case. Its community members are not monolithic and individuals have a range of tastes, for example in adult content.
Strand Consult predicts that BEREC’s six part approval criteria for zero rating will be a nightmare for national telecom regulators. A glimpse of the future can be seen in Slovenia today, a country’s whose net neutrality rules expressly allow price discrimination. The Slovenia regulator AKOS pronounced zero rating okay for the state-owned incumbent to offer its subscribers free viewing to the Champions League and to its proprietary cloud service. But AKOS simultaneously prohibited smaller independent operators from offering free Slovenian content, apps, and services—none of which were a competitive threat by market size or data traffic. The Slovenian operators are promoting the EU's Digital Agenda goals to promote European content and digital development, but they have been punished by their regulator. All of the country's network operators are suing the telecom regulator in response to the blatantly biased ruling.
Litigation in the US on the issue has been continued for some years. Metro PCS was the first operator to offer 4G in 2010. This operator feared losing low-income customers as it migrated to premium 4G plans, so it offered inner-city African American communities unlimited talk, text, and free YouTube for $40/month, $20 cheaper than its premium plan. Elitist net neutrality organization Free Press demanded that the FCC stop the offer. MetroPCS defended its offer in court, but with restrictive net neutrality rules that threatened its ability to offer flexible pricing and hence its financial viability, the company agreed to be acquired by T-Mobile. The US has one less network operator today, not to mention the lost welfare to the low-income communities which could have enjoyed such a plan. The issue is still being litigated, and will likely go to the Supreme Court where judges will recognize that sponsored data and zero rating are protected under the First Amendment, Freedom of Speech.
How BEREC, Google and net neutrality activists will punish those which dare to offer niche content and alternative means to access the internet
It would seem that members of the LBGT and other communities which will be denied opportunities for specialized mobile services should speak out against BEREC’s heavy-handed approach. However we expect that if they dare, they will face the backlash of a global network of highly sophisticated activists which threaten and intimidate anyone who dares to question the net neutrality orthodoxy. In India for example, they conducted app store vandalism, purposely downgrading the ratings of apps as a means to punish those companies which dared to create alternatives to the status quo. India's elites, including the leaders of its net neutrality movement, didn’t want the poor to be empowered with free WhatsApp, perhaps the world's most popular app. So they would rather that the poor be denied internet access all together than have a free version of Facebook, which incidentally creates competition for Google in the online advertising market. It is important to point out that Indian activists have no complaints about Google advertisements shown to the poor, only Facebook’s.
It is unfortunate that the mobile industry and its customers are denied the pricing flexibility enjoyed by the energy and financial industries. Strand Consult has described in a number of reports how credit card companies have partnered with affinity, philanthropic, and political organizations to create shared revenue and social benefit. Gay Mobile, Defense Mobile, Ay Yildiz, and other MNVOs and mobile operators would like to offer their customers more diversified mobile services—different content, different prices, affiliate point programs, and rewards--but the one-size fits all approach adopted by BEREC and the FCC makes this increasingly difficult.
To learn more about the status of network neutrality rules around the world and why activists succeed making rules that hurt consumers and innovation, see Strand Consult's report Understanding Net Neutrality and Stakeholders' Arguments.