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Net Neutrality Rulings Threaten Telco, Internet Partnerships

Ovum recorded more than 200 partnership deals between telecoms operators and Internet firms during 2015. Such partnerships give telcos the opportunity to associate themselves with popular apps and digital media brands and to offer their services at preferential rates. They give Internet companies access to more users and the chance to reach new market segments.

However, regulators in India and Egypt have recently focused on Facebook and specifically its Free Basics portal, which gives access to a number of local and global Internet services. Mobile operators offer it free of charge in the hope that once their customers have got used to using the limited, “light” versions of Internet services on Free Basics they will decide to start paying for full Internet access.

Facebook and Net Neutrality

In late December 2015 the Telecom Regulatory Authority of India asked Reliance Communications, Facebook’s operator partner, to temporarily suspend the service while it formulated a policy on differential pricing. During the consultation period, which ran until January 7, 2016, a bitter dispute developed between Facebook and supporters of net neutrality. Facebook has invested tens of millions of dollars in advertising campaigns for Free Basics and Mark Zuckerberg intervened in the debate.

The process leading to Free Basics being banned in Egypt on December 30, 2015 was less transparent. Net neutrality activists had opposed the service, but broader political motivations are understood to have played a role. The government had shut down thousands of Facebook pages in the previous week and arrested a number people for allegedly using the social media platform to incite violence.

Operators have been aware of the risk of zero-rated services falling foul of net neutrality concerns for some time. But neither Facebook nor its local partners will have been prepared for the barrage of criticism that they have received from net neutrality advocates. Developments in India are particularly interesting – and significant – because it is an emerging market that will ultimately be mobile-centric. A large proportion of its population will experience the Internet for the first time via mobile devices rather than a big screen.

Video and Net Neutrality

In developed markets such as Europe and North America, partnerships are increasingly focused on using video services to demonstrate LTE capabilities. In November 2015 T-Mobile introduced Binge On, a service plan that zero-rates specific video services, allowing customers to use these video services without worrying about them consuming all their data allowances. In December 2015 digital rights group the Electronic Frontier Federation (EFF) claimed that T-Mobile was throttling all video services not included in Binge On. T-Mobile CEO John Legere initially denied throttling and attacked the EFF. However, one of the telco’s content partners, 4stream, subsequently decided to withdraw from Binge On.

No Internet companies, even those with operator relationships and partnerships, want to be seen as flouting net neutrality rules. Facebook has been a strong advocate of net neutrality in the US, but many of its critics in India argue that the Free Basics service flouts net neutrality principles. Having invested heavily in Free Basics it is unlikely that Facebook will voluntarily withdraw the service. However, it can afford to accept only so much bad publicity in a market as rich in potential as India.

Whatever the outcome of recent events around the world, operators and Internet companies will inevitably be more circumspect about entering into partnerships that could potentially be construed as being against the principles of net neutrality.

Mark Newman is chief research officer for telecoms and media at Ovum. Read more Ovum blogs here.

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