Platform to Telecoms Relations

Platformization creates a power struggle between the traditional operators and the digital platforms. This is particularly the case when platforms do not substitute traditional service providers, but continue to rely on their services, while substituting them as coordinators of the system. This struggle is highly relevant in the telecommunications sector, as the infrastructures supporting the internet - the basis for the operation of all digital networks -are run by the same telecommunications carriers that are being platformed (Chapter 8). The same effect has been identified in media (Chapter 9).

In the relationship between digital platforms and telecom carriers, the conditions under which platforms have access to the underlying telecommunications services are key. Platforms need access to telecommunications services and want such access at the most favorable conditions in terms of price and reliability. Telecommunications service providers need to ensure that, as their services are commoditized, they still get the revenue they need to deploy and maintain their infrastructures.

Regulation is key for the definition of the conditions of the relationships between telecommunications carriers and communications platforms. The long-running debate between carriers and platforms, as well as the ensuing regulation, has been confusingly termed as “net neutrality” regulation.

The expression “net neutrality” was launched in 2003 by the American academic Tim Wu.4 Digital platforms insist on the need to impose regulation on telecommunications

Digital communications platforms

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Platformization Substitution

Telephony

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Print media, radio, TV

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Letter mail

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Figure 10.1

carriers to ensure they provide full and non-discriminatory access to their services to all applications and, more generally, to all content, particularly when carriers integrate vertically and not only manage the infrastructure but also their own applications (like telephony services and SMS) that compete with third parties that make use of their infrastructures.

Telecommunications carriers oppose such regulation, considering it an unnecessary restriction to the freedom to manage their assets. Firstly, they claim that network management is always necessary to avoid congestion in the network and to ensure that more demanding applications (such as real-time applications and VoIP) are correctly served, and that capacity, as a scarce resource, is not wasted on less demanding applications where time is not sensitive (such as email). Secondly, they claim that charging more for more demanding applications is a way to incentivize investment in the enhancement of the network, particularly the migration to fiber and 5G mobile networks. Thirdly, they claim that competition law is already sufficient to exclude potential exclusionary practices against competitors.

The debate has been particularly fierce in the US, where much of the conflict over net neutrality has focused on the classification of access to internet services under the Communications Act. Access to internet services were traditionally classified under Title I “information services.” Consequently, they were exempted from the so called “common carrier” obligations to serve everyone under non-discriminatory conditions, defined in Tittle II “common carrier services,” which applied to fixed telephony. However, in 2005 the Federal Communications Commission (FCC) adopted the so-called “Internet Policy Statement,” outlining principles on how internet service providers were supposed to provide their services. In August 2008, when the FCC adopted a decision based on the Internet Policy Statement forcing Comcast not to block peer-to-peer connections, Comcast challenged it before the US Court of Appeals for the District of Columbia. In April 2010 the Court ruled that the FCC did not have the authority to regulate network management practices and vacated the order. In December 2010, the FCC adopted the Open Internet Order, imposing transparency, no blocking, and no unreasonable discrimination obligations on ISPs. The US Court of Appeals again struck down the main content of the order in 2014, as it was considered that the non-discrimination rules and the anti-blocking rules were common carrier obligations that could not be imposed on services under Title I “information services.”

The FCC insisted by adopting the 2015 Open Internet Order, which reclassified access to internet services as Title II “common carrier services,” imposing bans on blocking, throttling, and paid prioritization by ISPs. In June 2016, the US Court of Appeals for the DC Circuit upheld the legality of the order. A decade of debates and litigations was to conclude with a victory for net neutrality supporters.

However, in 2017 the FCC reversed the 2015 Open Internet Order and reclassified access to internet services as Title I “information services.” Despite the legislative initiatives, the classification has not been modified in Congress.

Even more importantly, the abrogation of the 2015 Open Internet Order in 2017 did not lead to a major change in ISPs’ behavior. There have been no major actions by platforms against anticompetitive practices by ISPs. The apocalyptic scenario described by the net neutrality supporters has not materialized, despite the abrogation of the net neutrality rules. The bitterness in the net neutrality debate has gradually diminished.

In the EU, legislation was only adopted in 2015, in the form of a Regulation to be applied in all the Member States.5 The main obligation is defined in Article 3(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.” Reasonable traffic management is allowed, as long as it is transparent, non-discriminatory, and proportionate, and based on technical requirements, not in commercial considerations.

The experience over the past years is that the net neutrality rules have not been widely applied, as restrictive practices were actually not widespread. Also, in the EU the net neutrality debate has been reduced mostly to technicalities.6 Some platforms have recognized the need to have some kind of network management (Google), while others (such as Netflix) have even signed specific agreements with telecommunications carriers to benefit from such management.

It is important to note how platforms understood from an early stage that they would benefit not only from securing access to the telecoms infrastructure, but also from imposing the conditions for the use of the infrastructure, thus restricting the ability to manage the technical conditions of the services and the pricing strategy of the communications carriers.

In the early 2000s, when the net neutrality debate sparked, telecommunications carriers were on the powerful side in the relation with platforms. Former monopolies had a strong market position and enjoyed healthy margins. New services like fixed and mobile broadband ensured the future of revenue growth. Platforms, on the other hand, were still in their formative years and many of the largest platforms did not exist yet. Even the most successful platforms at the time had a limited revenue as their business model based on advertising was in its infancy. Google, for instance, had an annual revenue of $1.4 billion in 2003, while Verizon reached $67 billion.

Twenty years later, however, the balance of power has shifted. Platforms have reached the revenue levels of the communications carriers, as their network effects have matured. Platforms’ margins are healthier than those of carriers. Carriers face stronger competition from other carriers, and communications platforms have eroded a significant portion of the value of the industry.

In the new power equilibrium, regulating the conditions under which platforms can use the telecommunications infrastructures seems an unnecessary protection for the more powerful actors. Furthermore, it could reduce the availability of funding for the necessary maintenance and expansion of the communications infrastructure. On the contrary, calls have emerged, particularly in Europe, for “platform neutrality” rules.

 
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