Vodafone response to the European Commission Public Consultation on specific aspects of transparency, traffic management and switching in an Open

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1 Vodafone response to the European Commission Public Consultation on specific aspects of transparency, traffic management and switching in an Open Internet October

2 Executive Summary Network capacity is a finite resource and needs to be carefully allocated between different users and applications. Most communications networks have elements that are contented. This is of particular significance for mobile networks, but also applies to backhaul capacity of fixed networks or within user groups, such as members of private households. Current and foreseen traffic management practices are useful, beneficial and necessary for the functioning of our networks, the enhancement of services and the development of new business models. They do not put the current Open Internet environment at risk. Traffic management refers to a wide variety of different and constantly changing practices used for a variety of commercial, operational and security purposes. It should be left to operators to determine how those measures are delivered by the network. Regulators are not well placed to write detailed rules on how networks should be managed. Regulators should instead focus on the outcomes of traffic management and if they find that user interest is harmed or competition affected, they can intervene on an ex-post basis. Sector specific rules and general competition law are more than capable of dealing with infringements of customer interests. Retaining flexibility of operators to deal with uncertain and fast changing demands for their network capacity in the most efficient way is critical for emerging product areas. For example business models that guarantee or prioritise QoS are in an early stage of development. Where network capacity is limited operators will set prices that allocate capacity to the user or application that values it most thereby maximising the customer value and overall welfare. In case a market based approach will not deliver the desired outcome (e.g. customer groups not being able to afford access to services or applications) there is a case for directly subsidising those users. However trying to prevent the market from working instead cannot be an appropriate response. There still remains a strong role for regulators to ensure that vertically integrated operators cannot leverage their network to prefer their own downstream services. Specific nondiscrimination rules might need to be introduced to tackle such competition risks. Beyond that regulators will have to ensure that consumers are well informed of their choices and that they can change provider in case they are not happy with their choices. Barriers to switch in the mobile market are low and new measures to further facilitate switching defined in the 2009 regulatory framework are being implemented now. Regulators should refrain from imposing new rules. 2

3 Traffic management activities are, like all other activities undertaken by operators, subject to data protection rules. These are a matter for data protection regulators and should not be confused with, or introduced into, the net neutrality debate. While we believe in being transparent on DPI, we think that specific customers consent is not required to implement traffic management measures that are legitimate, beneficial and necessary in a variety of operational and commercial circumstances. Consent is implied by acceptance of the service. Explicit consent should be required if the technologies are used also for a secondary purpose (e.g. targeted advertising). We believe that service differentiation where users accept some service limitations in exchange of a lower price (e.g. pricing plans without VoIP) and where users pay a higher price to purchase guaranteed or prioritised service are overwhelmingly welfare enhancing. In the first case, the obvious advantage for the user is the lower price. If there is enough choice, transparency and low barriers to entry, customers will be able to make the choice that better suits their needs. Not all customers need the same set of functionalities and it is normal for competitive markets to offer differentiated services. Regulators are not well placed to decide how services should marketed to users and how prices should be set. Nor are they well placed to decide when internet access is used as a marketing term, or what other terms might be used. For example, regulators do not seek to govern how VOIP providers market their services. These are matters best left to the relevant advertising bodies and to the courts. 3

4 Question 1 Vodafone is answering the questionnaire as: d) Internet network or service provider Question 2 a) Please provide a brief description of your organisation and of your interest in open Internet issues. Vodafone Group Plc is one of the world's largest mobile companies providing a wide range of services including voice, messaging, data and fixed broadband. Vodafone has over 404 million customers, employ over 86,000 people and operate in over 30 countries across 5 continents. The Group s operations are split into three geographic regions North Europe, South Europe and Africa, Middle East and Asia Pacific (AMAP). Vodafone owns also a 45% share in Verizon Wireless in the United States. b) If your organisation is registered in the Transparency Register, please indicate your Register ID number The transparency register ID number for Vodafone is (Vodafone Belgium SA) c) Please provide the postal and address of your organisation and, if you wish, the name of a contact person (including telephone number and address) for any questions on your contribution. 25 Rue Archimede Brussels 1000 BELGIUM Contact Person for this consultation: Giulio Maselli Giulio.maselli@vodafone.com d) In which Member State(s) are you established and where do you perform your activity? Vodafone provides telecommunications services in 12 EU countries: Italy, Germany, Spain, UK, Ireland, Netherlands, Portugal, Greece, Malta, Hungary, Czech Republic and Romania. 4

5 1.1 Traffic management and differentiation Question 3: Please explain briefly which traffic management techniques are usually applied by network operators or ISPs and how they are technically implemented As other telecommunications operators, Vodafone uses different traffic management techniques in the various markets where it operates. With the term traffic management, we mean any action that analyses data traffic and applies different policies for the following purposes: To enhance its commercial proposition: Some applications require a specific minimum level of network Quality of Service (QoS) or reserved network capacity to function properly. This scenario includes IPTV and voice services offered on fixed networks. Customers pay an additional fee for the video content provided and they require a guaranteed performance level. On the fixed network, this is often provided via traffic management techniques that guarantee the required level of QoS on a constant basis (i.e. managed services). On mobile networks, a minimum level of guaranteed quality of service is not achievable because many factors influence the level of network performance (coverage, weather conditions, number of users connected to the same cell). However, smart mobile networks allow prioritised service for specific categories of applications. At the moment, Vodafone prioritise applications on a limited basis (e.g. Voice over LTE in Germany and IPTV on the fixed network). Traffic management platforms allow Vodafone to offer premium packages to users based on prioritised network performance and QoS in a number of European countries (Italy, Spain, UK, Netherlands and Ireland). These users get better performance compared to other users in the same situation (i.e. relative better performance) when congestion happens. In other words, the packets of some users get higher, but not absolute, priority compared to packets of other users. This is implemented at the radio-network level where bottlenecks are more likely to occur. The number of users with prioritised service will always be limited. This will not affect in a perceivable way the level of service offered to non-premium users.. Traffic management allows Vodafone to differentiate its prices according to customer needs. Not all customers need the full set of services at full prices. Users willing to restrict their VoIP, P2P or data tethering 1 use can get a lower price for their data connections. With these offers, VoIP, P2P or tethering (depending on the plan) are usually throttled (i.e. IP packets are slowed down) or blocked using network management platforms 2. Vodafone always provides a sufficient number of tariff plans without limitations to ensure that all customer needs are met. 1 This term refers to the use of the smartphone data connections as a modem for other devices(e.g. laptops, smartphone, tablets). Some tariff plans do not include tethering, while some others foresee an additional charge. 2 Terms and conditions of tariff plans that do not include VoIP usually exclude the possibility to use messaging over IP, however this is not technically implemented. Therefore, in practice, customers are able to use messaging over IP platforms. In Germany, any applicable restrictions on specific tariff plans are implemented only on a contractual basis, but not enforced contractually. 5

6 To protect users: Traffic management is also used by Vodafone to intercept and block viruses, malware and spam before they reach the end user. Without this, customers would be subject to virus and malware attacks that could put at risk the integrity of their devices. The user experience is also enhanced by substantial reduction of spam (unsolicited s). To reduce network congestion and enhance network resilience: Traffic management allows Vodafone to manage capacity hungry applications if there is congestion to ensure that all network users can continue to use the network. Mobile networks are designed to take expected traffic demand in different geographic areas into account. This is done by increasing the number of sites or the amount of valid spectrum in high demand areas. However, unpredictable factors may cause sudden increases in traffic demand in specific areas generating congestion. In these circumstances, traffic management is used to slow down applications that consume capacity but which can operate at lower speeds. This is implemented to prevent congestion affecting all users. To enhance user experience: Traffic management allows the network to recognise certain types of applications and to implement optimisation techniques to enhance their user experience and reduce the risk of congestion. Typical examples are video/image optimisation and compression techniques. For example, the network can recognise that the end-user is using a smartphone and automatically adapts the resolution of images and video to the characteristics of that terminal. 3 The application of the correct traffic policies (routing, filters, caps, prioritisation, etc.) to IP traffic requires Vodafone to interrogate internal databases (e.g. subscriber registry, traffic routing tables, etc.) and to recognise the different traffic categories. This is done by using traffic analytic tools which have been standardised by 3GPP (so called Traffic Detection Function TDF) which may rely on deep packet inspection. Additional traffic management techniques which are usually not considered in the net neutrality debate are the following (some of them are still in a planning phase): Use of Content Delivery Networks both at the edge of the network or closer to the access network Deep caching at different levels of the network (cache servers for most downloaded content are installed within the network closer to the user to reduce latency and increase perceived speed) 3 In VF-Germany network, this is performed on the basis of the APN dedicated to smartphone users. Customers can adjust the rate of compression or opt-out from the functionality by using a stand alone client or app. 6

7 Background downloading where the network anticipate the behaviour of the user and downloads content closer to the user before it is requested thus reducing latency and increase perceived speed Off-peak download where customers can select the content they want to consume at a later time. The network downloads the content at a time when the network is not congested Scheduled software updates where large software providers agree with network operators to distribute the software updates for users over a wider period of time and at off-peak time Question 4.a and Question 4.b: Please describe briefly how congestion management normally works. If possible, please provide a definition and examples of genuine congestion management measures, i.e. measures which are necessary to avoid or tackle network congestion, as opposed to measures which may be called congestion management but actually pursue other purposes. Congestion in mobile networks takes place mainly at the radio access level. Each cell in the network has a finite capacity due to the limited amount of spectrum. This finite capacity is shared among the users connected to the same cell. Depending on the technology being used (i.e. 2G vs 3G vs 4G), specific channels or capacity are dedicated to voice and signalling. The rest of the channels/capacity are used for data traffic. The sharing of the available capacity between different data users is an intrinsic congestion management activity where bandwidth is reduced for all to make sure that every user gets data access. For some applications a lower speed means just a less performing service, for other applications which are more sensitive to lower speed, they will simply not work. When congestion occurs, some users will not be able to access the web or use some applications. In addition to increasing the capacity of the access network (i.e. adding more base stations, buying/using more spectrum), other solutions used which are not based on traffic management involve the following: - Shifting traffic to other access technologies by facilitating use of WiFi in high traffic areas (owned or leased WiFi hotspots), at home and in the office - More widespread use of private Femtocells. For example by providing high traffic users with a Femtocell at home. Another possibility is to open privately owned Femtocell to other users - Off-peak download where customers can select the content they want to consume at a later time. The network download the content at a time when the network is not congested - Scheduled software updates where large software providers agree with network operators to distribute the software updates for users over a wider period of time and at off-peak time Congestion management based on traffic management techniques by operators imply a number of different possible solutions used in Vodafone networks (not all of them apply the same techniques): - Throttling traffic categories that are less sensitive to speed (e.g. P2P traffic) - Introduce video/image optimisation techniques that adapt the image/video resolution to the size of the screen of the user (e.g. no need to have high resolution images on smartphones with small screens). This saves network capacity without compromising the quality of the service 7

8 - Fair usage policies that throttle access of specific customers (in some cases only and for some categories of applications that do not comply with the terms of the policies). They are applied for a limited period of time. In general, fair usage policies are less common now in the mobile market as operators are moving to tiered plans. However, they are still important congestion management tools in the fixed broadband sector and in some mobile markets - Background downloading where content is downloaded during non-busy hours for use at a later stage More in general, bundle-based pricing plans are a way to reduce traffic consumption by giving the right price signals to users (i.e. making sure that the customer pays for the data usage increments). Previous plans with unlimited data consumptions (with fair usage policies) provided incentives to some users to generate abnormal levels of traffics. Question 5.a: Are traffic management measures applied to deliver managed services (e.g. to ensure a guaranteed quality of service for a specific content/applications) necessary X appropriate X Problematic Managed services with a guaranteed quality of service are offered only in the Vodafone fixed network of some countries. They are used to offer IPTV/VoD services that are paid by the customer through an extra charge. Voice over NGN (both mobile and fixed) can also be considered a managed service, but being part of regulated PATS, it is considered outside the scope of any Net Neutrality discussion. The need to treat Voice transmitted over the IP backbone as a managed service is also required by Quality of Service regulatory requirements (mainly a legacy of fixed telephony regulation) and the need to guarantee emergency services. At the moment, Vodafone does not use traffic management to deliver specific managed services on mobile networks. On mobile networks, managed services, intended as guaranteed QoS for a specific application, cannot be offered due to the unpredictability of mobile traffic (unless the definition of minimum QoS is defined in a statistical way: e.g. minimum speed of x Mbps for yy% of the time). However, new business models are developing fast and mobile operators are more likely to offer prioritised access for specific applications. CAPs might be willing to pay mobile operators to provide a better service to their end-users. An example could be fast moving HD video content such as Formula 1 that requires specific priority classes to function properly. At the moment, Vodafone does not offer such prioritised service on the CAP side, but it is investigating the possibility to do so in the future. We believe that the practices described above do not generate competition issues requiring prescriptive regulatory measures. If prioritisation is offered to all interested parties on the same terms, we believe that there should be no competitive concerns (i.e. potential unfair advantage to a Content and Application Provider - CAP compared to its competitors). We agree, however, that a vertically integrated operator that 8

9 competes with the CAP can give rise to concerns, but these can be addressed by straightforward non-discrimination rules. Large internet companies enjoy many economies of scale and scope that are not available to new entrants or smaller players. For example, larger CAPs can invest in more powerful servers, CDNs, advertising, etc. in a way that a small application developer cannot afford. These smaller CAPS will benefit from the availability of volume based charging for prioritisation services. This will put small and large CAPs on level playing field in terms of innovation and quality access to customers. Even though direct commercial agreements for prioritisation with all broadband providers will be the solution only for the largest CAPs, aggregators and intermediaries will offer similar services to smaller players. Intermediaries will have the direct relation with broadband providers and resell a wholesale comprehensive service to smaller CAPs that will just need to sign one or a limited number of agreements. This approach would be similar to the one currently adopted by Content Delivery Networks that bring content closer to the edge of the network where the end-user is connected. Question 5.b: Are traffic management measures taking into account the sensitivity of the service to delay or packet loss necessary X Appropriate X problematic These measures are very important to make sure that the limited network capacity is used in the most efficient way possible. If an application is not sensitive to delay, the network could give this application a lower priority without compromising the perception of the level of service received. On the reverse, other applications which are more sensitive will get a higher priority. This is the case of IPTV/VoD on the fixed network as described in the answer to question 5.a. At the moment, the typical example is traffic management of Peer to Peer traffic (measure used by Vodafone in some markets). Nonetheless, this practice is used much less often and usually only in case of congestion. Its relevance has also decreased as many operators have moved from unlimited data plans to plans with tiered data caps. This has removed the incentive for some customers to consume abnormally high amounts of data, usually for P2P applications. Initiatives by regulators to confront copyright infringement have also affected P2P volumes in some markets. The decision to throttle P2P traffic rather than throttle all applications - is driven by several considerations: P2P is the application least sensitive to delay. If the speed is reduced, it will simply take more time to transfer the files, but the application will work. Other applications such as online gaming, VoIP, streaming, etc. will simply not work if throttled P2P is peculiar in the use of bandwidth as it starts multiple TCP or UDP parallel connections. This means that a single P2P user consumes much more bandwidth when compared to users of other applications within the same mobile cell. If application agnostic restrictions 9

10 were applied, the P2P user would continue to have assigned a much higher cumulative bandwidth than other applications. We consider this unfair to other users. Question 5.c: Are traffic management measures used to implement or manage compliance with the explicit contractual restrictions (e.g. on P2P or VoIP) of the Internet access product accepted by the user necessary appropriate problematic Necessary X Appropriate X Problematic Traffic management is being used by operators to differentiate pricing according to customer needs. In particular, many mobile operators offer pricing plans that include VoIP and others where VoIP is not included (usually this is performed by throttling VoIP traffic rather than blocking it tout court). This practice responds to the different needs of customers. Not all customers use VoIP and they are willing to accept this limitation in exchange for a lower price. This practice is definitively welfare enhancing if operators offer a wide range of pricing plans that include or exclude VoIP. We think that the BEREC report published in May confirms that current VoIP price differentiation practices in Europe generate benefits for users. The Commission asked BEREC to provide details on the current market situation to check whether the restrictions on VoIP and P2P can be considered severe or if the differentiation is the outcome of the normal competitive dynamics. Among the data points collected, the analysis highlights that there is only one country with serious restrictions of VoIP in the mobile market (i.e. countries where operators that restrict VoIP to all their customers have more than 50% of the market) and only four operators that block VoIP to all their customers. Another 22 mobile operators Vodafone included- have some customers on plans that do not include VoIP. The remaining 85 operators have VoIP included in all their plans. The resulting picture should reassure both the Commission and BEREC that the availability of tariff plans without restrictions is sufficiently large to conclude that the advantages in terms of price differentiation (i.e. lower prices for customers that are not interested in one or more application) clearly outweigh any possible concern that the unavailability of some applications could have effects on future innovation due to the network effects. BEREC also notes that the number of operators with open pricing plans and operators that do not block VoIP at all on any tariff plans has increased. This is to be expected in a competitive market. The move toward plans that include VoIP is also the result of a broader tariff rebalancing process as operators adjust to the migration to IP. Operators are progressively moving from separate standalone tariffs for data and voice to joint bundles where customers obtain voice and data together. Within the pricing bundles, the driver is no longer the amount of voice and SMS minutes, but data. In the United States and Europe operators (including Vodafone) have recently introduced plans where unrestricted voice and SMS services are bundled into data plans. The attached graph shows the trend in penetration of integrated tariffs for some of the key European Vodafone operators. While the absolute numbers varies substantially due to the legacy 10

11 pre-paid plans in Italy and Spain, the general trend toward integrated tariffs is evident in all countries. Source: Vodafone Group interim management statement for the 3 months ending 30 June 2012 Question 5.d: Are traffic management measures targeting types/classes of traffic contributing most to congestion Necessary X Appropriate X Problematic This is the case of throttling of P2P traffic that is used normally only in case of congestion or within fair usage polices (i.e. when customers with unlimited data plans use an amount of traffic well above the normal user) 4. Throttling involves slowing down IP traffic to a low speed (e.g. max Kbps). The decision to throttle P2P traffic rather than throttle all applications - is driven by several considerations including the fact that P2P is the application least sensitive to delay and because P2P is peculiar in the use of bandwidth as it starts multiple TCP or UDP parallel connections. This means that a single P2P user consumes much more bandwidth when compared to users of other applications within the same mobile cell. If application agnostic restrictions were applied, the P2P user would continue to have assigned a much higher cumulative bandwidth than other applications. We consider this unfair to other users. The relevance of P2P limitations has decreased as operators have moved from unlimited data plans to plans with tiered data caps in most European markets. This has removed the incentive for some customers to consume abnormally high amounts of data, usually for P2P applications. Initiatives by 4 The objective of fair usage policies is to prevent abuses and to give to all users a fair share of the network capacity. As an example, these are the fair usage policies of Vodafone UK: 11

12 regulators to confront copyright infringement have also affected P2P volumes in some markets (P2P was the application most commonly used to distribute illegitimately reproduced content). Question 5.e: Are traffic management measures targeting heavy users whose use is excessive to the extent that it impacts on other users Necessary X Appropriate X problematic In the early stages of mobile internet development, mobile operators, including Vodafone, launched pricing plan with unlimited data. These pricing plans have led to the unintended consequence of having a few customers using a substantial share of the available network capacity. [xxx] Network performance for the remaining customers is substantially affected. As described in the answer to question 5.d, operators have responded by activating the Fair Usage Policies contained in the terms and conditions to make sure that usage by a limited number customers did not affect service to the rest of the customer base. This is usually done by throttling (for a limited period of time) data traffic over defined threshold considered normal for high data users. Traffic management is used to implement fair usage policies that are necessary to maintain a good service for the whole customer base. More in general, fair usage policies are becoming less important as customers are progressively moving toward tiered pricing plans where users buy predefined amount of data. Vodafone has substantially reduced the number of pricing plans with unlimited data. However, in some markets where tiered data caps are still uncommon fair usage polices still have a key role in preventing traffic congestion and allocating network resources to users in a fair manner. Question 5.f: Are traffic management measures applied during busy times and places, when and where congestion occurs Necessary X Appropriate X problematic Mobile networks are designed to share the available capacity in a specific cell among the users connected. The speed of the data connection will therefore depend on the number of users connected. When approaching saturation, the network progressively reduces the speed of all users to avoid congestion. As mentioned above in the answer to question 5.d, the policy to throttle P2P traffic is applied in circumstances where the network is becoming saturated. The reason why P2P is subject to more stringent policies than the rest of the traffic is fully described in the answer to Question 5.d. 12

13 Question 5.g: Are traffic management measures affecting all applications/content providers in the same way (application-agnostic) Necessary X Appropriate X Problematic As mentioned in the answer to Question 5.f, application-agnostic traffic management measures are already applied in mobile networks (speed for all users is progressively reduced as the cell reaches saturation). However, this approach is not sufficient to guarantee to all users a fair share of the capacity. Therefore, application specific limitations have to be introduced (e.g. P2P). Tiered pricing in mobile networks provide price signals to customers to avoid abnormal usage of the network and economic incentives to operators to invest in the network to prevent congestion as much as possible. A congested network does not only result in a loss of customers, but also in a loss of paid-for traffic (at least indirectly via bundles). Tiered pricing can therefore be considered a sort of application-agnostic measure. Question 5.h: Are traffic management measures affecting (similar) applications/content providers of the same category in the same way Necessary X Appropriate X problematic We believe that there cannot be any discrimination among similar applications within the same category. If VoIP is throttled on a specific pricing plan, the same approach should be applied to all VoIP applications. Similarly, if prioritised service is granted to an application provider, the same feature should be available at comparable conditions to providers of similar application. Vodafone will not discriminate different applications regardless whether they are provided by Vodafone or other third parties. Question 5.i: Are traffic management measures used, without other grounds, against services competing with the ISP's own services Necessary Appropriate problematic The blocking/limiting of competing services on all tariff plans without other grounds such as preventing congestion or differentiating pricing for the user is certainly problematic particularly if implemented by dominant providers or if applied by all or most operators in the market. However, the evidence from the BEREC information gathering exercise on traffic management published in May 2012 shows that currently this is not the case in Europe with the exception of one market. If operators offer a choice of plans with VoIP and without VoIP, if there is enough competition in the market and if offers are transparent to customers in terms of VoIP limitations, the pricing differentiation is necessary to make sure that customers not interested in VoIP will be able to pay less for the service. This latter example is clearly welfare enhancing and should not be limited. 13

14 Question 5.j: Are traffic management measures implemented at the full discretion of the ISP Necessary X Appropriate X Problematic All traffic management measures are implemented at discretion of ISPs for objective reasons as clearly explained in the in the answers to questions 5.a to 5.j. Question 5.k: other differentiation criteria (please specify) Necessary Appropriate Problematic Question 6.a: Please explain the impact of managed services on the standard Internet access service ("best effort") in terms of available bandwidth and quality of service. Managed services and best effort internet share the same network capacity. This means that an increased penetration of managed services could consume a larger share, in percentage terms, of available network capacity. This could have an impact on the performance of best effort internet, but only if the deployment of new network capacity would stop. In practice this will not happen as operators will continue to increase overall network capacity to cope with demand for both managed services and best effort internet. The great majority of customers and the great majority of services/applications are on the best effort internet. It is in the interest of ISPs to keep and constantly improve the high level of performance of the best effort internet. Otherwise, they will lose customers to competitors. The likelihood that ISPs can collectively agree to reduce performance is also remote given the competitive nature of the market (many networks, MVNOs and service providers), the complexities in keeping the anticompetitive equilibrium (monitoring and sanctioning deviations), the costpeculiarity of the telecom market (high fixed costs and low marginal costs), etc. In any case, any anticompetitive practices will be sanctioned by competition authorities. From a technical point of view, some managed services (e.g. Voice, IPTV, VOD, video-conference services on corporate LANs) offered on fixed broadband networks require operators to guarantee a certain level of QoS in the access network. This is done via various technical measures: A separate and dedicated channel for voice, IPTV, VOD as it happens on cable and FTTH/B access network Tagging the specific traffic and giving it a high priority, de facto creating reserved capacity channel (when the service is in use) Dedicating specific data ports to certain types of traffic and giving a high priority to traffic related to these ports. This creates a de facto reserved capacity 14

15 In any case, we believe that customers should be clearly informed that managed services will run on the same access line as internet access taking into account that parallel use of these services and could have some impact on the performance of internet access (e.g. a user watching IPTV and another browsing the web using the same fixed access line. This is not applicable at the moment to mobile services. On mobile networks, managed services with guaranteed capacity are not technically possible at this stage. Mobile networks are able to provide prioritised internet access to some users (i.e. bronze, silver, gold users). This means that traffic generated by customers with this functionality will get priority compared to traffic generated by best efforts customers when the network is approaching congestion (i.e. the reduction of speed is lower than the rest of the customers). The same functionality could also be applied to content and application providers if the network is capable to offer such functionality (at the moment, it is only available on LTE). Question 6.b: Please explain whether it is possible to offer separate capacity for managed services and the standard Internet access service. If yes, please provide information on the circumstances (costs, technologies) of separating them. As mentioned above, real and fully separate capacity can be offered at the moment only on FTTH/B and cable networks. Voice on 2G and 3G mobile networks can be considered as being offered on separate capacity as some channels can only be used by voice. Other managed services on DSL fixed broadband (e.g. IPTV, VOD,) are offered via de facto guaranteed capacity by providing high priority to these types of traffic. This means that a separation of capacity for managed services on mobile networks or fixed networks based on wholesale products cannot be offered. Cost estimates for the different technologies are not available. Question 7.a.(i): Please give examples of "new business models" which could be developed on the basis of managed services by Network operators/isps: [xxx] Question 7.a.(ii): Please give examples of "new business models" which could be developed on the basis of managed services by Content providers (on the basis of agreements with ISPs): [xxx] Question 7.b: How important are these innovative business models likely to become in the next three years? Please substantiate your view by means of available forecasts or studies. 15

16 These business models are in the early stage of development and it is not possible to provide estimated or forecasts. For this reason, it is necessary to leave network operators to be free to experiment different business models. Regulators are not in the best position to decide the best business models for the market. Question 7.c: What would be the expected benefits in terms of innovation and investment through new businesses (content or applications) benefitting from guaranteed levels of quality of delivery through managed services? New business models will generate more demand for additional premium functionalities and revenues leading to additional network investments and innovation. The additional revenues will improve sustainability of investments and the introduction of innovative functionalities in fixed and mobile internet infrastructure improving the level of quality of service for all customers. In particular, the new business models will give increase investments in: Platforms and functionalities that help to improve customer experience (Content Delivery Networks, deep caching, video/image optimisation techniques, etc.) Enhancing capacity/speed of current fixed and mobile networks Accelerate transition to LTE and fiber-based fixed network access Question 8: What are likely positive and negative effects of certain traffic management practices on the Internet ecosystem, in particular on innovation and investment, by (i) network operators/isps and (ii) content providers? Please explain your view and, if appropriate, distinguish between different traffic management practices. Traffic management systems allow operators to perform a number of activities. Each one of them will have positive effects on the Internet ecosystem: - Reduce/prevent congestion: o Better service for all customers leading to more applications and services o Optimise network investment - Price differentiation (prioritised access, VoIP inclusion/throttling, data caps, etc.): o Price innovation o Better value for money o Price structure closer to customer needs leading to higher mobile internet penetration o Application innovation (i.e. QoS requirements related to some applications) - Protect general users (block viruses, malware, spam): o Safer internet leading to higher penetration o More resilient networks - Protect minors (e.g. content filtering): - Optimise user experience (image/video optimisation, web caching) - Implement legal requirements 16

17 Among those mentioned above, differentiation practices on the application side (e.g. prioritisation) have been subject to more discussion within the Net Neutrality debate. Again we believe that the practices described above do not generate competition issues requiring prescriptive regulatory measures. If prioritisation is offered to all interested parties on the same terms, we believe that there should be no competitive concerns (i.e. potential unfair advantage to a Content and Application Provider - CAP compared to its competitors). We agree, however, that a vertically integrated operator that competes with the CAP gives rise to particular concerns, but these can be addressed by straightforward non-discrimination rules. Large internet companies enjoy many economies of scale and scope that are not available to new entrants or smaller players. For example, larger CAPs can invest in more powerful servers, CDNs, advertising, etc. in a way that a small application developer cannot afford. These smaller CAPS will benefit from the availability of volume based charging for prioritisation services. This will put small and large CAPs on level playing field in terms of innovation and quality access to customers. Even though direct commercial agreements for prioritisation with all broadband providers will be the solution only for the largest CAPs, aggregators and intermediaries will offer similar services to smaller players. Intermediaries will have the direct relation with broadband providers and resell a wholesale comprehensive service to smaller CAPs that will just need to sign one or a limited number of agreements. This approach would be similar to the one currently adopted by Content Delivery Networks that bring content closer to the edge of the network where the end-user is connected Traffic management and privacy issues Question 9: It appears that the implementation of traffic management measures requires ISPs to analyse certain information about individual data packets, for instance by deep packet inspection (DPI) techniques. Please explain which type of information needs to be read by ISPs to implement the different traffic management measures. In which layer can this information normally be found? Traffic management tools, sometimes relying on deep packet inspection, are deployed to identify the type of traffic (not the content of the traffic) and to apply the appropriate network policies. DPI techniques look at the sequences of bits (both the header and the payload) to recognise common patterns or fingerprints related to a specific application. However, they are not able to read, understand or translate the content of the transmitted packets (i.e. the contents of the letter). Once the specific patterns are identified, the traffic management policy is implemented. DPI technologies need to analyse the payload of the packet because the header does not contain enough information to identify the type of traffic taking as most communication applications (e.g. VoIP, messaging, etc.) encrypt traffic. The encryption requires DPI systems to look at the signature 17

18 (e.g. the fingerprints ) which is common within the same application. In any case, the DPI analysis is not decrypting the content of the communication. 5 The following figure simply describes this process. fingerprint of a virus blocked fingerprint of streaming allowed fingerprint of VoIP allowed, if price plan includes it fingerprint of VoIP blocked, if price plan does not include it To facilitate comprehension of how these analytical tools work, think of a comparison with hieroglyph. These analytical tools are like Egyptologists before the finding of the Rosetta Stone: they could recognise an inscription as being ancient Egyptian, but they could not understand the meaning. Question 10.a: Are there any privacy risks arising from the use of DPI for traffic management purposes, and, if so, what are the implications for transparency and consumer protection? The use of traffic management technologies for varying purposes naturally raises privacy concerns. Depending on the purpose for which the technology is used, there is the danger of mission creep (the danger of data captured being used for other purposes for which it was not originally intended). However, traffic management measures are legitimate, beneficial to our customers and are also necessary, justified and appropriate in a variety of operational and commercial circumstances as described in the previous answers. We recognise that operators need to properly and robustly control and govern such practices. However, the suggestion that customers should be asked to consent to the use of traffic management for purposes that seek to deliver a secure, confidential, and quality service to customers is not correct. In our opinion, any privacy concerns regarding the uses of DPI for traffic management purposes can be managed by robust accountable business practices and controls; and by providing customers with transparency surrounding the use of network traffic management technologies. At Vodafone we make a commitment to our customers to respect their privacy and adhere to laws and standards that are intended to protect consumer privacy. To that end we have a robust internal policy in place that governs the use of traffic management technologies. Any use of DPI or any other technology beyond the purpose of traffic management is carefully considered and a comprehensive privacy impact assessment is conducted to protect against mission creep (the danger of data being used for other purposes for which it was not originally intended). This enables us to identify any 5 DPI has the capability to identify the URLs that the user has selected. This information may be used for content filtering purposes, if the user has subscribed to the service. 18

19 privacy risks and legal compliance requirements and to develop solutions to protect them, followed by approval (or not so as the case may be) at a senior level within the business. Vodafone does not use traffic management to profile individual customers. If that were the case, we would only do so where our customers have given their explicit opt-in consent. Moreover, we are committed to being transparent regarding the use of network traffic management technologies. Vodafone informs customers about any relevant traffic management practices via a number of means: general terms and conditions that are available in paper form in stores and in electronic format via the local Vodafone websites; and specific sections of the websites dedicated to explaining traffic management practices. Vodafone is always working to improve the level and clarity of information provided to its customers. In some markets, this will also include the definition of industry code of conducts to make sure that all operators provide a minimum set of information with a common language. The first example is the UK industry voluntary code of conduct on traffic management transparency. The code foresees a commitment on signatory ISPs to provide more and better information to customers about the traffic management practices used. In addition, each ISP is required to publish a consistent Key Facts Indicator (KFI) table, summarising the traffic management practices they use for each broadband product they currently market. This will ensure comparability among tariff packages of the same ISP and among different ISPs. 6 There are also discussions in other countries to develop similar codes. Question 10.b: Are there alternative techniques for traffic management that do not involve deep packet inspection? Please provide examples and explain your response. Please compare those alternative techniques with deep packet inspection, in particular in terms of their effectiveness, potential impact on privacy and costs for operators As mentioned above traffic management is used for a variety of purposes. Some of them may have some alternatives which could achieve some of the objectives, but in a less effective manner. For example: Traffic management used for congestion prevention: alternatives could include investing substantially more in additional network capacity. This will be unprofitable and likely to raise prices for end-users. Another alternative would be to raise prices to curb demand (again not a practice that will satisfy users) Virus, malware prevention: possible alternatives are the usual antivirus software that currently are available only for computers and not smartphones 6 An electronic copy of the code can be found at the following address: 19

20 Content filters: alternatives include filter software downloaded on the device, but this may not cover all terminals and might not be as effective For the rest of the purposes (routing, caps, prioritisation, price differentiation, etc. ) there are currently no available alternatives. Question 11: Where the user's consent is required for traffic management measures, particularly where such measures might entail access to and analysis of certain personal data by ISPs, please explain how (e.g. in which format) this consent should be sought by the ISP, what prior information needs to be provided by the ISP to the user, and how the user consent should be given, in order to optimise user awareness and user convenience Vodafone believes DPI and other traffic management technologies are necessary and have legitimate uses and benefits to service providers and customers for example, traffic management and personal network security e.g. spam and malware detection/prevention etc. As outlined above, we believe in being transparent regarding the uses of DPI to optimise user awareness. However, we do not believe we should be required to seek the explicit consent of our customers for the purpose of implementing traffic management measures that are legitimate, beneficial and necessary to comply with legal obligations under EC electronic communications law in a variety of operational and commercial circumstances. Any requirement for consent should be tied to the purpose/use and not the technology. A technology neutral approach is required if any privacy implications are to be addressed in a balanced and effective manner. If data is captured and used for the provision of the necessary service, ensuring quality of service, filtering for malicious activities, choosing and enforcing tariffs etc. then consent should not be the basis of the data processing. It is a legal necessity to take appropriate, technical and organisation measures to safeguard the security of our network and services as set out in Article 4 of Directive 2002/58/EC (e-privacy Directive). Furthermore, traffic management technologies can be considered as ensuring the performance of the service contract with our customers who expect a degree of security in the services we provide Article 7b of Directive 95/46/EC ( Data Protection Directive). Article 4 of the e-privacy Directive and Article 7 b of the Data Protection Directive provide a legitimate basis for the processing of personal data in this regard. If service providers wish to use personal data captured from DPI technologies for a secondary purpose for which it was not originally intended, for example, targeted advertising, then explicit customer consent should be required. Where consent is required, it should be obtained by clear and prominent prior notice and meaningful choice Transparency and general characteristics of the Internet access offer Question 12: In order to allow consumers to make informed choices, on the basis of clear, meaningful, and comparable information, which elements should be communicated to consumers? 20