Scrapping net neutrality

Article published on Nov. 29, 2017
Article published on Nov. 29, 2017

This article has not been vetted by an editor at Paris HQ

A lesson from Europe

Several weeks before the US Federal Communications Commission (FCC) announced plans to dismantle the Obama administration’s net neutrality rules, California Congressman Ro Khanna was among those who shared a viral screenshot from a Portuguese mobile carrier as a worrying sign of what could happen next: broadband subscriptions bundled like cable packages, with consumers forced to pay more to access certain websites. While the carrier, MEO, does not block content, it does force users to pay more to use data for certain apps that are not included in their subscription packages.

Thus far, comparable behaviour by Internet service providers (ISPs) in the US has been forbidden under the Open Internet Order enshrined in 2015, which prohibits broadband firms from blocking or slowing down certain platforms or content. Now, however, the FCC’s change of heart raises the prospect of creating a “two-tiered” Internet system.  

In response, some stakeholders have asked whether state public utility commissions can step in to fill the void left by the FCC and safeguard an open Internet in its place. But this scenario raises the prospect of fostering overlapping, or even clashing, regulations in certain states versus others. This, in turn, runs the risk of building new silos in a country that has until now reaped massive benefits from its open digital market. Such a prospect means the US market could move closer to Europe’s fragmented system. And that is a worrying prospect, indeed.

Despite the existence of a number of solid EU-wide regulations – not least net neutrality rules – European lawmakers are still struggling to create the borderless “digital single market” that would make it easier for tech firms and consumers across the bloc to reap the full benefits of the Internet. Although the digital single market is one of the Juncker Commission’s biggest priorities, efforts to carry it out have been stalling, with hardly any of its proposals enacted so far.  This is a shame, since moving “from 28 national markets to a single one” could contribute an eye-watering €415 billion annually to the economy and spur job creation.

Of course, there is only so far that the digital single market can go in Europe, where there will always be more regulatory variance than in US. And to be fair, in some cases, this has been beneficial in those member states that have crafted innovative regulations for new digital industries.

Europe is known for its dominance in fintech, with the UK ranking as the biggest market in the world. According to the UK Treasury, fintech brings an estimated £7 billion annually to the economy and employs roughly 60,000 people.

Of course, London’s history as a global financial services hub has been a key factor. Also critical to the city’s rise as a fintech centre was the UK’s forward-thinking government policies. For instance, as part of a broader innovation initiative, the Financial Conduct Authority (FCA) has set up a “regulatory sandbox” for fintech start-ups, which is intended to create a “safe space” for businesses to test new products and services without running into regulatory walls. The government has also been providing more direct support, setting up an information hub for start-ups to access legal services and creating “fintech Bridges” with the UK Trade and Investment authority to help new firms expand internationally. The government has even appointed a special envoy for fintech, the venture capitalist Eileen Burbidge, who oversaw the inaugural International Fintech Conference in London earlier this year.

Of course, it is arguable that another key ingredient to the UK’s fintech success has been its EU membership, which has ensured easy access to foreign tech talent, data, and markets. It’s an open question how long the country can stay on top of the pile post-Brexit.

In addition to fintech, Europe’s online gaming industry, which faces fewer restrictions than in the US, has expanded to become the world’s largest market, representing 47.6% of global gross revenue in 2015. Because of its streamlined regulatory regime and gambling firms’ use of past proceeds to open lucrative online operations, the UK’s online gambling market has now become the largest in Europe – with an approximate economic weight in excess of £5 billion, which is expected to double by the year 2020. While the UK leads in terms of revenues, however, tiny Malta has also reaped the benefits of opening up its market to the industry, with online gaming accounting for more than 10% of the country’s GDP. The Malta Gaming Authority (MGA) has set up a regulatory regime to match, including anti-money laundering safeguards and player protections to help prevent problem gambling.

And herein lies the challenge for many players in Europe’s digital economy. Though the EU benefits from net neutrality rules across all 28 member states and certain states have indeed set up the right regulatory regimes to help new industries take off, overall, the persistently fractured nature of the EU’s market still represents a weakness, not a strength.

For those in the US hoping that state regulations can make up for national ones, then, this is a cautionary tale. Breaking up regulatory regimes means the prospect of breaking up the single market that has served the American digital economy so well up to this point. The benefits of strong federal regulations, especially when it comes to key issues like net neutrality, can’t be ignored.