Managed services – a net neutrality trap?

In an April press release, Deutsche Telekom announced it would throttle IP traffic flows of its DSL customers once they cross certain data limits and to privilege their own and „partner“ content at the same time. The announcement stirred up some debate about the need for regulators and legislators to act to preserve network neutrality. Deutsche Telekom argues that its Smart TV bundle service Entertain and other „managed services“ are not part of its internet access service. International experts have warned that the so called managed services might be a shortcut to circumvent net neutrality rules in place in some countries (e.g., The Netherlands and Slovenia).

Deutsche Telekom serves DSL customers in Germany and as former incumbent also has to grant access to its DSL network to competitors. For years Deutsche Telekom management has fought the battle to have its newly built networks exempt from access obligations and has also publicly asked major internet platforms to pay for delivery of large data volumes in what it called two-sides markets.

Back to 364 Kbit/s

According to Deutsche Telekom the following rate limits will apply (even if only enforced possibly as late as 2016):

• Rates with a speed up to 16 Mbit/s: 75 GB

• Rates with a speed up to 50 Mbit/s: 200 GB

• Rates with a speed up to 100 Mbit/s: 300 GB

• Rates with a speed up to 200 Mbit/s: 400 GB

Once the user crosses the limits their connection will be slowed down to 384 Kilobit per second (Kbps). Business users would not be affected. Users could buy additional volume and Deutsche Telekom content and, the content of paying partners like big content or Internet platform providers would not be throttled.

Activists reacted swiftly warning against „castration“ of the net and against the harm to innovations in cloud computing and streaming underway. Representatives of the Green Party and the Social Democratic Party declared further legislative steps were necessary. The German telecommunication regulator confirmed it would check the new contracts in light of existing regulation.

Managed services vs. internet access

“Managed services will be delivered at a higher and guaranteed quality at an extra cost,” a Deutsche Telekom spokesman explained. The company was open “for any cooperation” and was preparing a “standardised and non-discriminatory service offer”. What is important in the dispute around net neutrality is that Deutsche Telekom argues that managed services are a “separate data stream, independent from the regular best effort internet data traffic.” The SmartTV-DSL bundle Entertain was “no internet service, but a TV service”, the spokesman underlined. “Managed services”, also called “specialised services”, are mainly defined as offered to subscribers only with granted levels of quality of service, but the lines are blurred.

By establishing the different “channels” operators regularly try to circumvent network neutrality regimes, several researchers have said. According to Barbara van Schewick, Faculty Director at the Center for Internet and Society of Stanford Law School, the ban on discriminating against “like applications” - applications of the same category be it video or email - did not protect applications from being disadvantaged with respect to network providers' offerings sold and operated separately from internet access.

An example was the Comcast's digital voice service. Van Schewick had been an ardent proponent of stricter net neutrality rules favouring only application agnostic network management to reinstall application blindness. The blindness of the net towards the application or content delivered has been said to be the cornerstone for innovations without permission. She has pointed out that if granted the option to manage like applications, operators tended to discriminate against whole classes of services like p2p. A study by the EU regulatory body BEREC showed that 20 percent of fixed network providers in the EU did pose restrictions on p2p traffic. The German telecommunication regulator in a measurement campaign found that users very often did not receive the bandwidth they paid for.

Freestanding non discrimination rules ineffective

James Speta, Associate Dean of International Initiatives at Chicago Northwestern University School of Law, pointed out that regulators for a long time had overlooked that mere non discrimination rules might have a feedback into how carriers design their services and networks in order to route around the net neutrality obligations.

Where carriers could not negotiate to share the surplus of valuable content provisions there was a clear incentive „to restrict their Internet services so that they can drive customers to the platform on which the carriers’ negotiating position is better.“ The US administration did address the respective concerns for the first time during the merger of Comcast and NBC when there was an acknowledgment that open internet protections might be weakened if broadband providers offer specialised services.

Speta's conclusion is that „nondiscrimination rules over Internet services can only work if they are backed up by reticulated behavioral limits on other services offered by integrated carriers. As a result, the only intellectual frame through which the issue can profitably be addressed is the frame of antitrust analysis. No freestanding nondiscrimination rule will be effective.“ It is something that European non-governmental organisations have to consider when they call for a better net neutrality regime.