Ofcom response to the European Commission public consultation on specific aspects of transparency, traffic management and switching in an Open

Transcription

1 Ofcom response to the European Commission public consultation on specific aspects of transparency, traffic management and switching in an Open Internet Publication date: October 2012

2 General information Question 2: a) Please provide the full name and a brief description of your organisation and describe your interest in open Internet issues. Ofcom is the independent regulator and competition authority for the UK communications sector, with responsibilities across television, radio, telecommunications, wireless communications services and post. Ofcom s primary duty under the Communications Act 2003 is to promote and protect the interests of consumers and citizens. This duty underpins all aspects of our activities and drives our work to promote and deliver competition, investment and consumer choice in the market place. Ofcom welcomes the opportunity to provide views on the European Commission s public consultation on specific aspects of transparency, traffic management and switching in an Open Internet. These are issues in which Ofcom has taken an active interest, both at the national level and in contributing to the various BEREC outputs since 2010, and we continue to monitor this area closely. Ofcom consulted on a discussion document on Traffic Management and Net Neutrality in June and published a statement on Ofcom s Approach to Net Neutrality in November In our November 2011 statement, Ofcom summarised its overall position with regards to Net Neutrality: We recognise the benefits associated with best-efforts Internet access and the provision of managed services, and seek for them to co-exist. We would be concerned if network operators were to prioritise managed services in a manner that leaves insufficient network capacity for access to the open Internet. In such circumstances we would consider using the powers which allow us to safeguard access to the open Internet by imposing a minimum quality of service on all communications providers. We regard any blocking of competing services by providers of Internet access as highly undesirable. Where providers of Internet access apply traffic management in a discriminatory manner, our view is that this could have a similar impact to outright blocking. Our current view is that we should be able to rely on the operation of market forces to address the issues of blocking and discrimination, but we will keep this position under review. Effective competition requires that sufficient information is available to enable consumers to make good purchasing decisions. We therefore set out our view on what we believe to be necessary, both in terms of technical information on traffic management practices, and transparent information for consumers. 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. Ben Wallis, International Policy Manager, Ofcom, Benjamin.wallis@ofcom.org.uk Riverside House, 2a Southwark Bridge Road, London SE1 9HA, United Kingdom d) In which Member State(s) are you established and where do you perform your activity? United Kingdom

3 1. Traffic management Traffic management is the term used to describe a wide range of technical practices undertaken to manage traffic across networks, which includes prioritization, slowing down, throttling or blocking of certain data packets. There seems to be consensus that traffic management is a legitimate tool to effectively protect the security and integrity of networks, to restrict the transmission to end-users of unsolicited communication (e.g. spam) or to give effect to a legislative provision or court order. It is also widely understood that certain traffic management techniques are involved in the provision of "managed/specialised services"[1] (that provide a generally guaranteed quality of service and a strict admission control). This questionnaire focuses on cases where traffic management is applied by ISPs for such purposes, or for other contractual or operational purposes such as congestion management, the enforcement of contractual restrictions etc. Furthermore, BEREC's traffic management investigation showed that a number of traffic management techniques are actually applied by ISPs. For instance, ISPs commonly apply certain traffic management practices in order to avoid or manage traffic congestion in a network. Traffic management is also sometimes deployed to provide a guaranteed quality of service for "managed services", for example IP-TV, video on demand (VoD), etc. Another issue is that traffic management often involves monitoring practices that may raise privacy concerns. The following questions ask for additional information regarding these traffic management techniques. ( Managed services are sometimes also called specialised services. For the purposes of this public consultation both terms shall be deemed to be synonyms.) 1.1. Traffic management and differentiation Question 5: Please provide your views on the following ways/situations where traffic management may be applied by ISPs. Are traffic management measures: a) applied to deliver managed services (e.g. to ensure a guaranteed quality of service for a specific content/applications) Necessary By definition, managed services require some form of traffic management to deliver guaranteed QoS for specific traffic types or services. b) taking into account the sensitivity of the service to delay or packet loss Appropriate It is appropriate and will sometimes be necessary - whether it is necessary or not will depend on how much capacity is available in the access link or at other points in the network. c) 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 It can be appropriate but can also be potentially problematic. Whether it is problematic will depend on the degree of transparency of the practice and the motivation for it. Ofcom remains of the view that outright blocking or excess throttling to the point that the service in question becomes effectively unusable is highly undesirable. d) targeting types/classes of traffic contributing most to congestion Appropriate Certain classes of traffic can consume a high proportion of overall bandwidth without necessarily requiring it for the underlying purpose of the applications (e.g. the use of P2P for file transfers). This may be detrimental to the effective operation of other, real-time

4 applications such as VoIP, video calling and streaming. This suggests that it is appropriate to preferentially target less time sensitive applications to ensure the overall consumer experience is optimised. e) targeting heavy users whose use is excessive to the extent that it impacts on other users Appropriate In some circumstances, particularly where a number of users share a restricted access resource (e.g. such as the cable broadband customers on an individual node sharing a common DOCSIS bearer), restricting individual users who are using a disproportionate amount of the overall bandwidth available may be an appropriate means of ensuring equity and improving the overall customer experience. f) applied during busy times and places, when and where congestion occurs Appropriate Traffic management can be an appropriate way to deal with periodic congestion in order to ensure an acceptable consumer experience. Simplistically, it could be argued that a better approach would be to provide more network capacity at the point of congestion, but this may not be commercially feasible or desirable. g) affecting all applications/content providers in the same way (application-agnostic) This will depend on the circumstances. These practices can be appropriate, but may create risks. An application-agnostic traffic management practice may affect data from all applications equally (slowing all equally under congestion, for example), and this is potentially problematic as the prioritisation of time-sensitive applications (such as live video) may be of benefit to consumers. Alternatively, an application-agnostic traffic management practice may target the data traffic associated with individual subscribers, as discussed in the answer to 6 (d) above. h) affecting (similar) applications/content providers of the same category in the same way The practice is appropriate but it does create risks which may be problematic; depending on the level of prioritisation for particular classes of traffic and the overall peak congestion, this can result in some applications becoming unusable. i) used, without other grounds, against services competing with the ISP's own services Problematic As set out in our November 2011 statement, there is a concern that service innovation would be hindered if providers of Internet access blocked services, or applied traffic management in a manner that discriminated against competing providers. As well as being a general concern, there is also a specific current concern that some mobile operators already block services provided by some competing providers. We do not have a general objection to models of competition where vertically integrated operators do not provide open access to their networks, provided that there is genuine competition and rivalry among the firms in the market and genuinely open access is provided by at least some providers. We do however have a specific concern that restricted access to the Internet could have a stifling effect on innovation. Our stance as a regulator is that any blocking of alternative services by providers of Internet access is highly undesirable. Similarly, whilst we recognise that some forms of traffic 3

5 management may be necessary in order to manage congestion on networks, we expect such traffic management practices to be applied in a manner which is consistent within broad categories of traffic. Where providers of Internet access apply traffic management in a manner that discriminates against specific alternative services, our view is that this could have a similar impact to outright blocking. j) implemented at the full discretion of the ISP Appropriate The Internet eco-system is a dynamic environment new applications are continually being developed and launched and the consequent demands on underlying network services can change very rapidly. It would be wholly inappropriate for regulators or policy makers to set prescriptive ex ante rules on how access and other network operators should manage their systems in the face of this dynamic. It is therefore appropriate to allow network providers to react to changes in demand as they see fit, relying on competitive market pressures with backstop ex post regulatory intervention if necessary to prevent consumer detriment. 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. The benefits of innovation without permission are important consumers value the new services that have arisen as a result of it, and the conventional model of competitive intensity leading to the maximisation of such benefits could break down if access operators were able to discriminate against other services unfairly. On the other hand, traffic management can be an entirely legitimate means of optimising network performance, for example by ensuring that the overall bandwidth in an access network and between it and the rest of Internet is shared equitably between users, with more time sensitive application classes being given some prioritisation if congestion occurs. This may extend to the provision of managed services that provide QoS guarantees for high bandwidth applications such as long form broadcast quality video. The best means of ensuring that such traffic management is not unduly discriminatory and in the best interests of consumers is by requiring or encouraging maximum effective transparency of what measures access providers actually apply. This allows consumers to make informed choices between providers, based on what service attributes are important to them, and may provide an evidence base for regulators to determine if the practices adopted are detrimental to the interests of consumers. 1.2 Traffic management and privacy issues 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. Although we have not examined this in detail, we are not aware of traffic management measures, including those using DPI techniques, which necessarily involve analysis of personal data, although some DPI practices may do so.

6 2. Transparency and switching (consumer choice) Transparency is a key tool in the EU electronic communications framework to protect users and to ensure competition. Transparency enables consumers to optimise their informed choices and thus benefit fully from competition, in particular at a time when ISPs are developing new business models. The BEREC investigation has revealed that many consumers have Internet access subscriptions with a number of restrictions. Moreover, the development of new business models is likely to lead to a broad range of offers which may contain different traffic management restrictions. These may address the needs or interests of specific consumers at prices which might not otherwise be available. It is, however, not clear whether ISPs are sufficiently transparent about such restrictions allowing consumers to make a deliberate choice. Customers, therefore, need clear, meaningful and comparable information on any limitations of their subscriptions comprehensible to all. These requirements raise the question whether a restricted Internet access product may still be described, without qualification, as "Internet access" or whether the unqualified label "Internet access" should be reserved to (largely) unrestricted access offers. This debate has already been opened in some Member States and this public consultation seeks also views on this issue. Another aspect of transparency concerns broadband speed, and in particular possible discrepancies between advertised speeds and actual speeds. Transparency should be complemented with measures aimed at ensuring easy switching from one provider to another, and from one offer to another offer of the same service provider, to empower consumers to choose the service which best matches their individual needs. The electronic communications framework facilitates switching of operators by imposing the obligation to implement number portability within one day, by limiting the initial commitment period in contracts with consumers or by specifying that the conditions and procedures for contract termination shall not act as a disincentive against changing service provider. It further specifies that subscribers have a right to withdraw from their contract without penalty upon notice of modification to the contractual conditions. It is also important to ensure that barriers do not arise as a result of the growing trend towards bundled services. This may require that switching processes and contractual arrangements are consistent between services offered in bundled packages, e.g. the most common "triple play" package of fixed voice, broadband and pay-tv. 2.1 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? All of the parameters listed in question 12 are relevant and some are more important than others. What is important is that, to help them make effective choices, consumers have accurate, clear, comparable and accessible information about traffic management and other variables which affect broadband quality of service and the customer experience. Providing clear information on such a complex subject is challenging. As set out in our November 2011 statement, we have identified six principles that can help suppliers provide good traffic management information for consumers. They are based on a number of our past projects including our 2006 Consumer Policy Statement which outlined the role we need to take in consumer information and the need for consumers to have access to comparative information. These principles suggest that consumer information should be: Appropriate ISPs should disclose all information, and only such information, that a consumer needs to make an informed decision. Accessible Basic information should be available at the point of purchase, and more detailed technical information should be readily accessible online or on request. 5

7 Understandable Information should be simple enough for consumers to be able to understand the practical impact of traffic management policies on the way they may use the Internet service. Verifiable Consumers or third parties (e.g. intermediaries such as price comparison websites) should be able to verify any information provided. Comparable Consumers should be able to compare information provided by different providers. Current The information available to consumers should be up-to-date, both at the point of sale and subsequently. These principles require a trade-off between simplicity and completeness. This is a difficult balance, and there is unlikely to be a single right approach. For example, third party intermediaries may be able to make use of information which is complete but complex, whereas many consumers are likely to require a simple summary of those traffic management policies which have most impact on the services they wish to use. Our view is that information on broadband quality of service should include at least the following elements: Speed information that indicates the level of service consumers can expect to receive. Information about the impact of any traffic management that is used on specific types of services, such as reduced download speeds during peak times for P2P software. Information on any specific services that are blocked, resulting in consumers being unable to run the services and applications of their choice. There have been a number of regulatory and self-regulatory initiatives in the UK to address these issues. Since June 2011, all major UK ISPs have been committed to the voluntary Broadband Stakeholder Group (BSG) code of practice on Traffic Management Transparency 3 which created a standardised format for reporting on traffic management policies, including the production of Key Facts Indicators (KFI) tables. Ofcom has welcomed this code as a positive first-step towards improving transparency and consumer awareness. The information provided by ISPs in the KFIs should help consumers to compare broadband products within each ISP s product suite and also compare between the types of products offered by the various ISPs. It could also be used by intermediary information providers (i.e. price comparison websites) in ways which will help consumers make comparisons and hence empower them. The BSG Traffic Management Transparency Code of Practice has been in place for over a year, and is due to be reviewed. As part of the research conducted into compliance with our well established Voluntary Code of Practice on Broadband Speeds, we looked at the provision of traffic management information. Compliance with the BSG Traffic Management Code appears to be satisfactory and it is clear that UK ISPs have made positive efforts to improve the level of information to consumers. However, it remains unclear whether the information provided is easily understood and usable by consumers. This is something we will address with stakeholders over the coming months. 3

8 In July 2012, a number of major UK ISPs signed up to a second voluntary BSG Code of Practice on Open Internet 4, under which the signatories committed not to block legal content, applications or services. In effect, this code complements the Traffic Management Transparency Code by setting out what broadband providers will do, as opposed to what they will inform consumers about. Ofcom has observed the development of the Code and is supportive of the commitments it includes. The Open Internet Code did not secure the same comprehensive participation as the Transparency Code. In particular, among large fixed and mobile ISPs, Virgin Media, Everything Everywhere and Vodafone did not sign up to the provisions of the Code. Although wider participation might be better, the substantial coverage of the code is a significant and positive outcome. Critically, it should not be necessary that all providers offer broadband access services without any service discrimination for competition and innovation on the Internet not to be at risk (and intervention to be unnecessary). What is required is that there should be a satisfactory balance between fully open Internet access services, and restricted or managed services, both in terms of products offered and consumer penetration; and that there should be transparency and easy switching between providers. Our next step in relation to the provision of open Internet access will be through Ofcom s Infrastructure Report Update, which is scheduled for publication in late The 2012 publication will include a section on the status of the open Internet in the UK, reporting on the extent to which providers offer open Internet access services, and on the relative pricing and consumer penetration of open and of managed/restricted access services. This analysis will support Ofcom s ongoing assessment of the need for intervention, for example in the possible imposition of QoS obligations. It is also worth mentioning Ofcom s work on broadband speeds 5. Ofcom has taken a number of initiatives to ensure that the way in which broadband is sold works in the interests of consumers. These initiatives include: Introducing and updating a voluntary Broadband Speeds Code of Practice which ensures that ISPs provide consumers with clear information on the maximum speeds available on their particular line (and other speed-related information) with the aim of helping them make more informed purchasing decisions. Publishing regular research which allows consumers to compare fixed-line broadband performance across different providers, technologies, geographies and time of day. The data is collected from a panel of broadband users by our research partner, broadband monitoring company Sam Knows. Publishing consumer guides to advise consumers on how to improve their broadband speeds and get the best deal on their broadband service. Creating a UK broadband map which allows consumers to see at a glance how their region compares across a range of metrics with other areas. The broadband market has changed significantly since we undertook these measures: speeds have improved significantly due to greater take up of superfast broadband, prices have fallen, and there is now a greater choice of speeds and packages than ever before

9 Question 13: Some ISPs currently apply 'fair use policies', which give them wide discretion to apply restrictions on traffic generated by users whose usage they consider excessive. Do you consider that, in case of contractual restrictions of data consumption, quantified data allowances (e.g. monthly caps of x MB or GB) are more transparent for consumers than discretionary fair use clauses? Ofcom is comfortable with either data allowances or fair use policies the key is that transparency in the application of such policies is vital if consumers are to be in a position to exercise choice. Therefore, as long as ISPs provide consumers with clear and transparent information about what these policies mean for their package and usage, we believe it is best to let the market decide how ISPs should respond to usage they consider excessive. Question 14: a) When should the elements of information referred to in question 12 be provided to the consumer by the ISP? X before signing the contract regularly updated during the contract period X during the contract period if changes occur X other b) Which format (e.g. contract, general terms and conditions, separate and specific information, other (please specify)) do you consider appropriate to communicate this information to consumers? As stated in response to question 12, Ofcom s 2011 statement explained how the approach to transparency about traffic management requires careful judgement to ensure that all necessary information is available, and in a form which consumers can understand. Where consumers are entering into a long-term contract, for example, it is particularly important that comprehensive information on broadband quality of service is available at the point of sale. Whilst we recognise these complexities, our view is that any information provided should include at least the following elements: Speed information that indicates the level of service consumers can expect to receive. Information about the impact of any traffic management that is used on specific types of services, such as reduced download speeds during peak times for P2P software. Information on any specific services that are blocked, resulting in consumers being unable to run the services and applications of their choice. If there are material changes in this information once a consumer has purchased a service, ISPs should provide an update as quickly as reasonably possible, probably via electronic means ( or SMS). If these have a significant impact on the service being purchased, we also encourage the ISPs to provide the consumer with the option of switching to another package or another service provider, and provide information to consumers as to how they can exercise this choice. Where changes to terms and conditions are materially detrimental, customers must be able to exit their contract free of penalty. Question 16: a) In order to promote transparency and consumer choice, do you consider it necessary that comparable data on the Internet access provided by ISPs is collected and published by NRAs or another independent organisation? Yes

10 Please provide reasons for your answer. Also, do you think this information should be broken down by geographic areas or different data plans? In order to understand the performance of UK fixed broadband connections, we commission research to identify the average download speeds they deliver, along with a number of other metrics which determine the consumer experience of using broadband services. We do this because it allows consumers to compare broadband performance across different providers, technologies, geographies and time of day. In addition, Ofcom has a duty under the 2010 Digital Economy Act to publish a regular Infrastructure Report. In late 2012, an update to the Report will focus on the coverage and data demands of fixed and mobile networks and, as mentioned in the answer to question 12, will include a section on the status of the open Internet in the UK. These data collection exercises have enabled Ofcom to provide consumers with an interactive map ( showing accurate information on broadband take-up, speeds and availability. We will continue our work to ensure that consumers have adequate information on the actual fixed-line and mobile broadband speeds available to help them make informed choices when selecting their broadband package. Question 17: a) Do you consider it necessary to regulate the labelling as "Internet access" of subscriptions that restrict access to some Internet services, content or applications? As noted in Ofcom s November 2011 statement, if ISPs offer a service to consumers which they describe as Internet access, we believe this creates an expectation that this service will be unrestricted, enabling the consumer to access any service lawfully available on the Internet. As a result, if a service does not provide full access to the Internet, we would not expect it to be marketed as Internet access. It is possible that providers may seek to market a restricted service as 'Internet access' by caveating this with a description of the restrictions they have put in place. Consideration needs to be given as to whether this practice is acceptable. We believe this will depend, at least in part, on whether consumers would be able to make sufficiently informed decisions based on such a formulation or whether, in practice, the risk of consumers being misled about the service they are buying remains unacceptably high. 2.2 Switching Question 18: a) Please explain what barriers to switching ISPs still exist (if any) and how they can be overcome. Please mention in your reply all direct and indirect factors dissuading consumers from switching (e.g. obstacles linked to the terminal equipment, burden of proof regarding a possible breach of contract, etc.) Ofcom considers that in order for markets to operate effectively it is necessary for consumers to be able to easily switch between providers. Consumers may experience contractual barriers, interoperability barriers, informational barriers or process barriers to switching. 9

11 Ofcom research in found that, among inactive decision makers who agree that changing provider seems like too much hassle, the key hassle selected from the list relates to the decision maker searching for information about potential providers; nominated by over half (54%) of these consumers. The remaining aspects related more directly to the process of switching; with around one third saying that they considered knowing the necessary steps required to switch provider (34%) and needing to be in contact with more than one provider to arrange the switch (29%) to be hassle. Contact with the current provider featured as perceived hassle among inactive consumers with around one fifth nominating having to tell their provider they want to cancel (22%) and getting their provider to give them the necessary information to be able to switch (21%). A variety of reasons for deciding not to switch were given by respondents who were considering switching, and there were some differences across the services considered for switching. Reasons relating to the switching process (18% fixed line voice, 16% mobile phone) and the save and retention offer (17% bundle, 17% mobile phone) both play a role in considerers deciding not to switch for some services, but these reasons are less likely to be given by those considering switching pay TV (7% Process reasons, 4% Save and retention offer). Those considering switching pay TV and mobile phone are more likely than those considering other services to have decided not to switch due to availability (11% pay TV, 14% mobile phone). While the switching process and save activity play a role in considerers deciding not to switch, inertia, no benefit in moving and contractual terms are also likely barriers. Below we provide detail on: Process barriers; Save activity; Contractual barriers; Interoperability barriers; and Information barriers. Process barriers One of Ofcom's annual plan priorities for is to develop and implement policies that will improve the ease and efficiency of switching processes between communications providers. There are several problems with current switching processes which we think have contributed to fixed voice and broadband consumers delivered over the Openreach copper network either perceiving there will be difficulties if they switch, or having experienced difficulties when they switched both of which may deter consumers from switching. Multiple processes The use of multiple switching processes rather than a single process means there is: a) a lack of clarity for consumers since the switching process to be followed depends on things that are invisible to the consumer, and b) increased hassle for consumers (e.g. following multiple processes simultaneously when switching a bundle, additional time spent speaking to providers, additional contact points with providers). This is likely to worsen in the future with the increasing trend towards bundling, more consumers switching complete bundles and as the bundles offered become more complex. Ofcom research has found that consumers perceive that there is greater "hassle" in switching ISP when the broadband service is bundled with other services. 6

12 Varying and unnecessary switching costs/hassle While consumers will always incur some level of switching costs when they switch provider (searching for information etc) we consider there are areas that may result in increased and unnecessary switching costs for the consumer. The evidence suggests that different levels of hassle are associated with the different switching processes. Our research suggests a relatively greater level of hassle associated with the Migrations Authorisation Code (MAC) process and a significant minority of switchers find the MAC process difficult. Consumers indicate hassle associated with difficulty getting through and getting information from the losing provider, having to inform the losing provider, and arranging for stop and start times. Furthermore, our broadband consumer research in 2011 found that 6% of broadband considerers said they dropped out of the process due to the hassle of getting the MAC. A losing provider can also discourage a consumer from switching by making a reactive save offer. The MAC process also requires the consumer to contact both the Losing Provider (LP) and Gaining Provider (GP) to start the switching process so the number of touch points in the formal switching process is higher. We believe this increases the time and hassle involved in switching and also affects consumer perceptions of the hassle involved in the process and may deter some from actively thinking about switching provider. We believe the current MAC process result in considerable harm and unnecessary hassle for consumers and there is a need for change to deliver better consumer outcomes. Back end deficiencies Industry-agreed back-end switching processes are intended to ensure continuity of service when the consumer is switching providers. If followed, the consumer s experience of switching can be smooth and efficient. Some providers do not follow these agreed processes which can mean consumers are asked to cease their existing service and start a new provide with their new provider this approach is burdensome to the consumer (e.g. connection and cease charges, more hassle and potential loss of telephone number and/or service). In other cases, consumers are sometimes asked to cease and have a new provide because of deficiencies in processes which allows providers to validate assets appropriately. Research suggests that 54% of switches that went through a Cease & Reprovide process should have gone through an industry-agreed process. Furthermore, some providers cannot easily cope with switching more than one service simultaneously this means they sequentially switch services in a bundle with around one in five broadband switchers losing their service for an average of one week. In Ofcom s research into the Business Consumer Experience 7, 16% of those who considered switching but did not switch said the process was too complicated and 8% said they were concerned about loss of service during switching. As with fixed-line users, lack of time and complications in the process were among the most commonly cited reasons for considering but not ultimately switching supplier. However a minority (8%) of internet and data users were so concerned about losing service during the switching process that they decided not to go ahead. In addition to process barriers, there are of course many other barriers to switching ISPs. At a high level, they can be categorised as follows:

13 Save activity ISPs often offer better deals to consumers when they consider that the consumer is likely to switch provider. In general, save (or retention) activity is a characteristic of a well functioning market. However, in the case of "reactive save", i.e. the save activity which follows when a consumer is required to contact an ISP indicating that they are going to change provider, there is the potential for this process to disincentivise switching in a way which has a detrimental effect on competition. Consumers are saved by their provider and across the market as a whole this can have the impact that: a) Entry is deterred as the acquisition costs for entrants are increased. This is because incumbent providers only need to offer their most competitive deals to consumers who are looking to switch away from them (whilst maintaining higher prices for inactive customers) whereas entrants must offer competitive deals to all customers. b) There is a problem with adverse selection where we believe providers have an incentive to make save offers only to the most valuable customers. This also deters entry as potential new providers will acquire a disproportionate amount of low value consumers. c) Switching regimes which require customers to contact their provider before switching provider exacerbate these issues as ISPs face less pressure to maintain competitive prices for all their customers, as they have the opportunity to make a counteroffer to each and every customer that wishes to leave them. Contractual barriers These exist when consumers cannot change provider without paying a significant termination charge. It is common for new customers for broadband services to sign up for a minimum contract length. In the UK this is typically 12 or 18 months. This contractual commitment may be driven by the need for the ISP to recoup installation costs or the supply of consumer equipment, such as routers. As such, consumers receive benefits in return for their contractual commitment. However, the role of regulators is to ensure that consumers are aware of the commitment, that termination charges are proportionate 8, and that contract lengths are not detrimental to effective competition. Other contractual barriers in the UK in the past include automatically renewing contracts, whereby if a consumer does not terminate a contract within a certain period that contract automatically renews, preventing the consumer from exiting without paying a termination fee until the end of the renewed contract (typically after 12 months). Ofcom introduced regulation which has meant that from 31 December 2011 these automatically renewing (or "rollover") contracts are banned in the UK. Interoperability barriers There may be barriers to switching when there are restrictions as to how consumers can access, share and create content acquired or generated across multiple devices and networks, and when there are restrictions preventing content acquired or generated from 8 Ofcom has published sector specific guidance which sets out Ofcom s view of the law and what communications providers have to do to meet their obligations under the Regulations to ensure that additional charges are fair and transparent. The Guidance is intended to help ISPs and other Communications Providers meet the requirements of the Regulations, as well as to assist Ofcom and any other bodies which have powers to enforce the Regulations. It complements OFT guidance on the Regulations. The Guidance focuses principally on contract terms which provide for the payment by the consumer of additional charges, default charges, minimum contract periods and notice periods, and contract terms which may lead to additional charges being incurred. (The Guidance can be found at

14 one device, platform or ecosystem being moved to another. These issues are likely to increase as Internet service provision is increasingly bundled with content services. Informational barriers Lack of clear and easily accessible information on how to change provider may limit switching. Similarly, switching may be constrained if consumers are unable to effectively compare providers. Since 2006 Ofcom has accredited seven websites offering price comparison calculators. The Ofcom Price Accreditation Scheme provides quality assurance that the calculations of price comparisons of fixed line, mobile, broadband and digital television services offered by accredited companies are accessible, accurate, up to date, transparent and comprehensive. The price accreditation scheme aims to give consumers a level of confidence and reassurance in markets where finding the best price for communications services can be an often confusing and sometimes daunting experience. b) How should an ISP inform consumers of changes to their packages? Under Article 20 of the Universal Service Directive (USD), Ofcom has the power to specify the form in which notifications of changes to the contract are to be made. At present, we consider that industry should decide in the first instance how best such notifications of contract changes should be made and therefore, we have not set out specific notification requirements. That said, Ofcom considers that notifications will have to at least be in a form which subscribers can reasonably be expected to read and expect ISPs and other communications providers to actively communicate any proposed modifications to their customers. Notifications should furthermore be expressed in plain, intelligible language and be set out with due prominence. Letters and s (if that is the means of communication chosen by the subscriber) are the most obvious examples of notifications. Other printed material, such as pamphlets or magazines, may be used, but whether this is deemed sufficient will depend on how transparent it is made to the subscriber upfront that such publications may contain important information. Not all customers read pamphlets or magazines sent by their ISP. In addition, we do not consider that a notification which asks subscribers to regularly check their ISP s website for possible changes to their contract is acceptable. c) What actions by an ISP would constitute a breach of contract or modifications to the contractual conditions which would enable a consumer to be released from a contract? Breach of contract If an ISP fails to adhere to the terms of a contract, a subscriber may wish to pursue the ISP for breach of contract through the courts system. Alternatively, if the subscriber is a consumer or small business customer, they may pursue an ISP for breach of contract through an Alternative Dispute Resolution (ADR) scheme. (In the UK, ISPs are required to be a member of one of the two ADR schemes (Ombudsman Services: Communications and Communications and Internet Services Adjudication Scheme (CISAS). The ADR schemes acts an independent middleman between the service provider 13

15 and the customer when an initial complaint cannot be resolved. The ADR scheme will consider the complaint and come to a decision that the ISP must abide by). Modifications to the contractual condition which would enable a consumer to be released from a contract Ofcom s General Condition 9.6 (GC9.6) states that: The Communications Provider shall: (a) give its Subscribers adequate notice not shorter than one month of any modifications likely to be of material detriment to that Subscriber; (b) allow its Subscribers to withdraw from their contract without penalty upon such notice; and (c) at the same time as giving the notice in condition 9.6(a) above, shall inform the Subscriber of its ability to terminate the contract if the proposed modification is not acceptable to the Subscriber. Therefore, if an ISP makes modifications to their contractual conditions they must comply with the requirements in GC9.6 and must give one month s notice of any modification that is likely to be of material detriment to the subscriber (consumers and business customers) and inform them of their right to terminate without penalty. In addition, the Unfair Terms in Consumer Contracts Regulations (the UTCCRs ) set out the basis on which a contractual term may be considered unfair. The UTCCRs apply to contracts between ISPs and consumers. A term in a consumer contract allowing the ISP to make unilateral changes to that contract may be unfair under the UTCCRs if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations to the detriment of the consumer. If a contract is to be balanced, each party should be sure of getting what they were promised in exchange for providing the consideration they agreed to provide. If a term is found to be unfair, then it is not legally binding on the consumer. d) Should customers be able to easily opt out from certain contractual restrictions (up to a completely unrestricted offer) by the same operator? This depends on the terms of the contract and whether restrictions are fair and whether they have changed materially during the term of the contract. Consumers must be able to exit contracts when changes to terms and conditions are made which are materially detrimental. If they are purchasing a contract with restrictive terms, these restrictions must be fair or the contract will be illegal. Restrictions should be transparent to consumers at the point of sale. e) Do you think that a customer should be allowed to switch to another operator within a reduced contract termination period in case his/her current operator does not at all offer an unrestricted Internet access product or does not allow switching to such unrestricted offer? This depends on whether the traffic management practices are made clear at point of sale. If not, then it may be reasonable for an ISP to release consumers from their contracts. Also, if restrictions are added during a contract term, we would expect this to trigger the ability for consumers to exit their contract. Question 19: While there may be valid (technical) reasons why consumers do not always get the advertised service speed or quality, should there be a limit on the discrepancy between advertised and actual service parameters (e.g. speed)?

16 Ofcom considers that, as the broadband market continues to evolve, it is necessary that broadband advertising allows consumers to make informed decisions while also allowing advertisers to effectively communicate how their product compares to others in the market. Ofcom s research on actual broadband speeds and consumer attitudes to broadband speeds support the need for a move away from advertising up to headline speeds. The advertising of broadband speeds is regulated by the UK Advertising Standards Authority. In responding to the ASA s 2011 review of broadband speeds advertising 9, Ofcom made the following recommendations: A Typical Speed Range (TSR) representing the range of speeds actually achieved by half of customers should be used when advertising broadband on the basis of speeds. If a maximum up to speed is used in an advertisement, then the TSR must have at least equal prominence. Furthermore, the theoretical maximum up to speed stated must be a speed actually achievable by a material number of customers. Advertisers should include a qualification alerting consumers to the fact that they can confirm the likely speed that they will receive at the point of sale, and must also explain in the body copy that actual speeds depend on line quality and distance from the exchange. Any reference to broadband speed in advertising (for example words such as fast, superfast, lightning, etc) must be accompanied by a TSR, which should have at least equal prominence to these words. ISPs must be able to substantiate speed claims made by providing robust data which is representative of the actual average speeds its customers receive. In relation to the use of the term unlimited in broadband advertising, we recommend that the use of the term unlimited is only permitted where the service in question has no usage caps through a fair usage policy or similar. Question 20: Pursuant to Article 30 (6) of the Universal Service Directive conditions and procedures for contract termination shall not act as a disincentive against changing service providers. How could changing of operators be facilitated? Please provide examples and explain your response. Please refer to our response to Question 18 which covers our views on how barriers to switching ISPs can be overcome. In summary - consumers should be able to switch between providers without undue effort, disruption or anxiety. Question 21: How could the transparency of bundles (packages including telephony, Internet, TV) be improved for consumers and how could switching be facilitated in the presence of bundles? It is vital that switching processes are simple and consistent between providers and that consumers have easy access to clear information about the processes involved in switching multiple services. Research indicates that consumers taking bundled services perceive

17 greater hassle in switching provider (paragraph 4.10 of Ofcom s 2012 Switching Consultation 10 ) Consumers switching to, from and between bundled services for fixed voice and broadband may need to navigate both the Notification of Transfer (NoT) and MAC switching processes simultaneously. This increases the complexity of the process and places an additional burden on the consumer (i.e. it increases switching costs). It also means that any consumer or competition problems caused by switching one service using one process may have an impact on the other service that is being switched using the other process. If a process provides a built-in opportunity for reactive save activity or is associated with higher switching costs, which result in the consumer deciding not to go through with the switch for that service, they may then also decide not to go through with switching the other service. Switching bundles could be facilitated by ensuring: There is a single switching process for all services within a bundle (whether a consumer wishes to switch a single or multiple services within the bundle) i.e. consumers do not have to navigate multiple processes simultaneously which can increase complexity and place additional burden on the consumer. Consumers should be able to switch their bundled services in parallel, rather than sequentially which can result in a break in one or more of their services within the bundle. Our consumer research in 2010 suggests at least one in ten switching a bundle experienced an unwanted break with no service. Furthermore, around one in seven switching a bundle experienced a period paying more than one company to ensure continuity of service. Question 22: a) How important would be the benefits for end-users of improved transparency and facilitated switching? Very important Important Slightly important Not important Please explain your response: As stated in our November 2011 statement, our approach to traffic management will continue to rely primarily on there being effective competition amongst ISPs but this requires that sufficient information is available to enable consumers to make the right purchasing decisions; and that consumers are able to act on this information by switching providers where appropriate. For individual consumers, efficient switching processes result in lower barriers to changing providers. This is because efficient processes limit the hassle involved in switching, making it easier to move to a preferred provider (and consequently, for example, taking advantage of lower prices/better service quality). Efficient switching processes are therefore likely to increase consumers ability to take advantage of competitive choice in the market. Switching processes also need to be robust to accommodate market developments such as increased bundling of services and any future emergence of new technologies and services 10

18 For efficient providers, efficient switching processes enable expansion within markets where they already operate and/or successful entry into new markets. In this way, new/innovative providers are able to challenge incumbents, winning consumers that might otherwise stick with an existing service. With markets opened up to potential entry, providers have the incentive to innovate and supply services which offer customers a clear improvement on existing products. Conversely, inefficient switching processes discourage innovation and market entry and also discourage consumers who would otherwise switch from doing so. b) What would be the expected benefits in terms of innovation by new businesses (content or applications) as a consequence of improved consumer choice and increased competition between ISPs? As stated in our November 2011 statement, the widespread availability of 'best-efforts' access to the open Internet gives rise to the following key economic characteristics: low barriers to entry, allowing innovators to create and distribute new services; e.g. anyone who wants to can develop an app or create a website; low transaction costs that enable a wider range of transactions; e.g. consumers selling goods on ebay; large addressable markets that allow new business models to develop; e.g. for the provision of niche content, by giving suppliers access to a wider audience; and near-instant access to content and services; e.g. downloading music, films or books. These characteristics create a virtuous circle, in which all consumers and citizens are able to access a wide range of services, whilst any service provider can exploit the large addressable market and low barriers to entry intrinsic to the Internet to develop innovative new applications, and to test demand. 3. IP interconnection issues Interconnection arrangements between networks take the form of transit and peering agreements. They have traditionally been based on the "best effort" principle. Disruptions of interconnection or deterioration of interconnection service quality at the wholesale level could lead to a situation where end-users and content providers cannot reach all destinations on the Internet. IP interconnection is therefore relevant for this consultation. Question 24: a) In your view, are there any problems regarding IP interconnection arrangements (between network operators, ISPs, transit providers and/or content providers) that could have an impact on the quality of the best effort Internet? No Please explain your response Ofcom agrees with the conclusions of the OECD report on Internet Traffic Exchange 11 and the draft BEREC report on the IP Interconnection market 12 : that the market continues to work efficiently without any regulatory intervention te=dsti/iccp/cisp(2011)2/final&doclanguage=en

19 Given that the relationships between the actors in the IP value chain (Content and Application providers, Internet Service Providers, CDNs, etc.) are continuing to change, it is however appropriate for regulators and policy makers to monitor this market and developments in it in order to ensure that the competitive dynamic remains healthy. In particular, we would be concerned if emerging managed or enhanced quality services led to less investment or deterioration over time in best efforts Internet services. Ofcom basically sees three potential areas of concern in the IP Interconnection market: where the so-called eyeball access ISPs become integrated with the transit providers where there is little competition in the access ISP markets where upstream providers of content or services have market power and discriminate between access providers unduly. b) Are there any specific issues related to the vertical integration of ISPs and transit providers? Yes Please explain your response The vertical integration of access ISPs and transit providers becomes a potential problem when combined with a lack of sufficient competition in the retail ISP market. Normally an upstream provider is able to reach a specific end-user via either transit or peering. The relative equivalence between two alternative routes to reach an end-user lies at the basis of IP Interconnection markets working in an effective and efficient way. Vertical integration between ISPs and transit providers risks reducing the effectiveness of this market mechanism if the access provider is able to discriminate in favour of services carried over its own upstream arm. When the end-user ISP also is a main transit provider, it gives this market player more leverage when negotiating interconnection with, for instance, Content and Application Providers. This is of relatively little concern as long as there is sufficient competition in the retail market, as end-users are able to switch to an end-user ISP which gives them a better Quality of Experience. CAPs are able to mitigate the risks of this development through direct peering or bypassing any attempt at restricting access to their content, or could attempt to extract additional revenues through consolidation. Question 25: Direct peering, Content Delivery Networks (CDN) or Quality of Service Interconnection (between ISPs and content providers) are being developed to propose an enhanced quality of service for content providers and end users. a) What role can they play in reducing the risk of network congestion? While it is not up to regulators to decide which solution will work in the market place, the concept of QoS Interconnection deserves some attention. It has been technically possible for more than a decade to implement QoS interconnection between networks but, from a commercial and management point of view, it has never been seen as necessary or practical. Now, however, it is being proposed by some market participants as a way forward to allow network operators to get more value out of their networks, by ensuring end to end quality for services that are of particular value to users and providers. While this has some resonance in policy terms, in practice the concept has yet to become popular although, arguably, the widespread adoption of content provider-financed CDN and caching server-based delivery could be viewed as a means to the same end.

20 The Internet interworking market - largely absent of regulatory intervention has mostly chosen the most efficient way to improve the Quality of Experience (QoE) of end-users: CDNs offset the increased bandwidth needs by serving and caching frequently accessed content closer to the end-user. The closer CDNs are located to the enduser the more immune they become to upstream network congestion. Direct peering (paid or free) allows two parties who mutually exchange significant amounts of traffic to have a more efficient/direct interconnection, thereby becoming less reliant on transit providers to manage their traffic. In addition, there are new techniques such as multicast or MBMS to be introduced to forestall problems that may arise due to network congestion caused by parallel content-rich service delivery. b) What opportunities and threats do they constitute for: (i) ISPs, (ii) content providers, (iii) transit providers and (iv) end users? While Ofcom considers that CDNs and direct peering are an effective market response to the increases in bandwidth demand, QoS Interconnection does offer a potential alternative but does not necessarily justify regulatory or policymaker intervention at this stage. If problems do develop, we believe that they can be more efficiently solved by market players themselves, with regulatory intervention only as a last resort. c) Are there any barriers of a regulatory, technical or business nature that prevent market players other than ISPs from playing a more important role in reducing the risk of network congestion? No At present, the market mechanisms work effectively. However, there is an information asymmetry where tools for mitigating network congestion largely reside with those players with extensive direct AS (Autonomous Systems) or BGP (Border Gateway Protocol) interconnection. While Ofcom is not against introducing QoS Interconnection into the market, it should certainly not be mandated by any regulator at this stage as there are alternative operational and commercial mechanisms to ensure a good QoE for end-users. 4. Process Question 26: a) Do you consider that intervention by public authorities is necessary at this stage? No Question 27: a) Have you made use of the dispute resolution powers under the Framework Directive in relation to a dispute about traffic management practices? (See in particular Article 20 of Directive 2002/21/EC (Framework Directive) which allows either party to request a binding decision by the NRA to resolve a dispute within the shortest possible time frame and normally within four months). No b) Have you also made use of these dispute resolution powers also in relation to disputes between an ISP and a content provider? No 19