The EU's march to digital oblivion
The EU adopted misguided rules to enforce net neutrality and end wireless roaming charges.

Article Highlights

  • EU leaders are so desperate for re-election that they will sacrifice their platform for the sake of feel palliatives that pander to voters.

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  • The EU's vote to end mobile wireless roaming charges and enforce net neutrality hurts growth and competitiveness.

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  • To enforce the new roaming rules, regulators will have to set up a de facto surveillance system to track citizen's use of mobile phones.

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  • Net neutrality's impossible requirements to create the ultimate internet experience for all will inevitably lower quality for everyone.

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European Union leaders, with European Commission Vice President Neelie Kroes at the helm, are so desperate for re-election in May that they will sacrifice their very platform for the sake of feel good palliatives that pander to voters.

The original idea behind the proposal for a digital single market for the "Connected Continent" was for Europe to “tap all sources of growth to exit the crisis, create jobs and regain its competitiveness." But a recent vote to end mobile wireless roaming charges and enforce net neutrality does nothing to support the economic reforms that the EU needs. Furthermore there is little relief for Southern Europeans so hard hit by the financial crisis they can’t roam anyway.

The EU’s new roaming rules create perverse “mobile arbitrage” where consumers can buy SIM cards and telecom services in countries where traffic is cheap, such as Lithuania, and use them in countries where traffic is dear, such as the UK, thereby avoiding the price differences in the UK where taxes and spectrum costs are considerably higher. British operators must deliver the traffic regardless of the costs. Already, financial speculators have expressed interest in gaming the rules.

The EU is aware of the danger and says that the plan is subject to “reasonable use” and that “excessive use” is not allowed. It says it will stipulate rules for monitoring abuse and meting punishment. In practice, Europeans who frequently travel, for example students and business travelers, will be the unwitting violators under the new plan. The irony is that the EU, which has criticized the the National Security Agency’s monitoring activities, will now set up its own de facto surveillance system for tracking citizens’ use of mobile phones. The system will likely force operators to police not only their own customers, but also roaming customers that enter their networks.

This grotesque outcome with roaming further highlights the problems of net neutrality in the EU. While the new rule protects traffic from monitoring and blocking online, it creates a new regime to monitor and block citizens instead. Operators are restricted from managing their networks to ensure optimal user experiences for all their subscribers. Furthermore, the murky managed services definitions threaten to curtail innovators’ ability to contract with network operators to improve the distribution of services with better quality. Net neutrality’s impossible requirements to create the ultimate internet experience for all will have the inevitable result of lowering quality for everyone.

Creating a world with a patchwork of net neutrality regulation will itself provide arbitrage opportunities. Digital entrepreneurs will likely look for the countries and regions where they are allowed to contract with operators to offer services that users want.

A decade ago, many considered the new EU an economic threat to U.S. economic and technological dominance. At that time there were six European handset makers, and Europe's Global System for Mobile Communications was the global mobile standard.

The reality is different today. There are no significant European phone makers. EU network investment has plummeted from one-third to less than one-fifth of the world’s total. The U.S., which invests in broadband at twice the per capita level of the EU, has fostered 15 of the world’s top 25 Internet companies; the EU has only created one.

It is unfortunate that the EU’s leaders are failing to address the real change that is needed to make the EU competitive. One important step would be to harmonize the tax system so that all EU countries are attractive to Internet companies, not just Ireland. Another reform is to allow operators to consolidate so that they can achieve greater scale and lower transactions costs. All told, 74 percent of the EU fixed broadband subscriptions are delivered by DSL (versus 34 percent in the U.S.), and just 26 percent of people in the EU can get LTE (versus 97 percent in the US). Operators can’t get the conditions to create the real facilities-based competition that exists in the U.S.

The parliamentary vote will have to be approved by the Council of Ministers before it becomes law. But no one should worry about the EU being an economic threat. It is dead set on following the path to digital oblivion in the name of consumer interest.

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