What is ‘zero-rating’ and why is the EU taking action against it?

16 Sep 2020

A person browsing the internet on public transport. Image: © Андрей Журавлев/Stock.adobe.com

The Court of Justice of the EU has taken action to ensure that zero-rating practices used by internet service providers can’t contribute to anticompetitive behaviour.

The European Union’s highest court, the Court of Justice of the EU (CJEU), has made a landmark ruling against the use of commercial ‘zero-rating’ or ‘zero-tariff’ practices by internet service providers (ISPs).

The ruling, published on Tuesday (15 September), said that under EU net neutrality rules ISPs cannot have zero-rating agreements that combine a zero-tariff with measures blocking or slowing down traffic linked to the use of non-zero tariff services and applications.

The practice of zero-rating has raised concerns from those who believe that it can prioritise some services over others and undermine the principle of net neutrality, which promises fair competition online.

The CJEU said that net neutrality regulation aims to establish common rules to safeguard equal and non-discriminatory treatment of traffic in the provision of internet access services and users’ rights. The regulation also aims to protect end users and guarantee the continued functioning of the internet ecosystem “as an engine of innovation”.

This is the first time the CJEU has interpreted these regulations. According to Fortune, telecoms regulators in the EU decided in 2016 that zero-rating was technically allowed, as long as an assessment could demonstrate that customers weren’t being steered away from services that compete with bundled offers.

The CJEU has now clarified that stricter measures need to be put in place to control zero-rating.

What exactly is zero-rating?

Zero-rating refers to the practice used by ISPs to provide internet access without financial cost under certain conditions. For example, ISPs can permit access to certain websites for free or subsidise the service with advertising or by exempting certain websites from a consumer’s data allowance.

Some telecoms companies offer consumers bundles that exempt certain streaming services from being counted towards a data allowance, so users don’t run through their entire mobile data allowance while streaming music on Spotify or videos on Netflix, for example.

As explained by TechCrunch, to implement zero-rating, ISPs write code that notes when a packet of data is going to or coming from a certain place on the internet. The companies treat those packets the same way they treat any others, but when the process is completed, the data isn’t entered to the ledger that keeps count of how much data a consumer uses.

Problems have arisen where telecoms providers have zero-rated their own services to create a competitive advantage.

One example in the US provided by TechCrunch was when Comcast did this with its on-demand streaming service, so shows watched through the service didn’t count towards users’ data caps, but video content consumed through competing platforms such as Netflix and YouTube did count towards the data cap.

Companies could also pay ISPs a fee to have their sites or services zero-rated, which would make it easier for established companies to promote their content and make it more difficult for a smaller service to compete.

Opposition from the EU

The CJEU ruling came from a case regarding Hungarian telecoms company Telenor, which provides internet access services to customers. Two of its packages include preferential zero-tariff access, where data traffic generated by certain applications and services does not count towards the consumption of data purchased by customers.

In a press release regarding the ruling, the CJEU said: “Such [zero-tariff] packages are liable to increase the use of the favoured applications and services, and accordingly, to reduce the use of 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 such agreements, 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.”

The court said that when providing internet access services, ISPs should treat all traffic equally and without discrimination, restriction or interference. ISPs will now be prohibited from going beyond “reasonable traffic-management measures” by blocking, slowing down, altering or restricting specific content, applications or services.

The CJEU’s ruling will not stop ISPs from offering zero-rated services that are exempt from the consumer’s data cap, as long as access to those service also pauses when a user’s general data cap is reached.

European Consumer Organisation senior digital policy officer Maryant Fernandez said the group welcomes the decision from the CJEU.

“It draws a very strong red line for telco companies who try to deviate from the EU’s net neutrality rules. Zero-rating is detrimental to consumers, it compromises their freedom of choice. It’s the very purpose of net neutrality that consumers can access everything the internet has to offer.”

Kelly Earley was a journalist with Silicon Republic