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EU study finds 'little reason' for concern over impact of 'zero-rating' of apps on competition

Competition between internet service providers (ISPs) or content providers does not appear to have been affected very much by the 'zero-rating' practices applied by ISPs to some applications, according a new study.15 Jun 2017

The study (198-page / 2.43MB PDF), commissioned by the European Commission's Directorate-General for Competition, did highlight the potential for competition concerns to arise as a result of zero-rating. However, it concluded that "there appears to be little reason to believe that zero-rating gives rise to competition concerns" at the moment.

'Zero-rating' is the practice some ISPs engage in of omitting internet users' use of specific applications or categories of applications when applying caps on data use.

According to the newly published study, social media, audio streaming, video streaming and text communication apps are the "most commonly zero-rated" by ISPs.

In some cases, zero-rating could have "potential exploitative or foreclosure effects", according to the study report. It warned ISPs or content providers could be shut out of markets in circumstances where the ISP is "also the content owner" or if the ISP agrees contracts with content providers to provide that content is made exclusively available to the ISPs' customers.

However, the study said that such exclusivity agreements "seem to be difficult to put in place for content that is available over the general internet, and in particular content that is free at the point of use".

"Zero-rating access to particular applications that are available on the open internet is easily replicable and does not require any consent from the content provider," the report said.

Content providers do not appear to have sufficient power in the market for exclusivity agreements with ISPs to cause competition concerns currently, the report said.

"Arrangements under which an ISP guarantees exclusivity to a content provider (e.g. an arrangement under which the ISP undertakes not to zero-rate access to other services) would seem to require that content providers possess substantive market power and use it to foreclose competitors by imposing requirements on ISPs that potentially run against the ISPs’ interests," the report said. "If such a strategy were to be used to discourage users from accessing competing applications, it would have to cover a sufficiently large number of end users, which in turn would seem to require similar exclusive arrangements with a number of ISPs."

"Our research has not found a situation in which all operators zero-rate only the same particular application(s), nor have we found any evidence for arrangements that would give exclusivity to a certain ISP or a specific content provider. Therefore these concerns may – at least at present, and on the basis of the limited evidence available – be of limited relevance in practice," it said.

Mergers and acquisitions in the telecoms and content markets have the potential to spur competition concerns around zero-rating practices, the study said.

"Detrimental effects from zero-rating would typically require there to be market power at some level, or an agreement or concerted practice that creates a network of agreements, and competitors being unable to replicate the underlying arrangement," it said. "Replicability may be more difficult in the in the case of operator-owned content, which may become more prevalent as a result of mergers between broadband providers and application providers. In this case zero-rating may be used as a discriminatory tool."

The practice of zero-rating is not banned in the EU, but it is restricted by net neutrality regulations and guidance.