wednesday, 13 december of 2017

Net neutrality: the regulatory debate on its flexibility in the USA and Brazil

Ericson M. Scorsim

In the United States of America, the decision on the flexibility of net neutrality is on the agenda of the Federal Communications Commission, under the leadership of the Republican Ajit Pai. According to the President of the FCC: "President Trump and Congress have appropriately invalidated one part of the Obama-era plan for regulating the Internet. Those flawed privacy rules, which never went into effect, were designed to benefit one group of favored companies, not online consumers".1

The purpose of the new regulatory policy of the FCC is to reinstate broadband internet services classification as an information service and not as telecommunications services (common carriers). Classifying internet connection services as common carrier leads to obligations to third parties, especially the guarantee of equal competition. Thus, with the FCC regulation in force, there are rules preventing broadband providers from blocking or slowing down broadband internet connection services. If the regulatory change is passed by the FCC, internet access services providers will have more freedom to set prices, for the purposes of compensation for the use of the telecommunications' infrastructure network. The new regulatory policy would be especially created to pass transparency rules for internet connection providers, to know which websites or applications pay an additional value for high-speed streaming, and the monitoring of net neutrality would be done by the Federal Trade Commission.

The FCC Fact Sheet - Restoring Internet Freedom claims that the current regulation does not encourage new investments in the telecommunications' infrastructure network.2 If the new regulation is passed, telecommunication services' operators such as Comcast, Verizon and AT&T would be able to determine which online websites their clients can consume, as well as block or favor the traffic of certain contents.

This potential change to internet regulation in the USA resulted in a debate on net neutrality in Brazil. The highlight here is the internet of things phenomenon (digital communication between machines) as an argument for reviewing the Brazilian Internet Regulatory Framework.

Here are some considerations on this debate on net neutrality being held in the USA and Brazil. Internet regulation deeply affects telecommunications companies, internet access providers, internet applications providers, the new business models of technology companies, and online content providers. Therefore, this regulation impacts different markets within the internet platform. It has a particular impact on the entertainment, audiovisual, and commercial advertisement markets.

From an economic perspective, the core issue of the controversy is broadband internet consumption and its pricing: who should foot the bill and how much should that bill be. Should consumption be measured and priced accordingly, so that the more bandwidth consumed, the greater the payment? For example, major video consumers (movies, sitcoms, television programs) would pay more for bandwidth consumption. The alternatives to the regulatory treatment of the issue are: ensure market freedom, that is, the companies negotiate freely, through commercial agreements, on the payment for data packet traffic; or the sector's regulation, preserving net neutrality.

In Brazil, internet connection services are not telecommunications services. It is an added-value service to the telecommunications network, as determined in the General Telecommunications Act, Article 61, paragraph (1).

Here in Brazil, unlike in the USA, net neutrality is legislated by a law, the Internet Regulatory Framework. The issue in the USA was regulated through mere interpretation of the law by the Federal Communications Commission. Because of this, the classification of internet access services as a telecommunications service is being questioned in court.
According to the international press, Netflix has entered into a business agreement with one of the owners of telecommunications networks to ensure the flow of data traffic related to its audiovisual content.

In Brazil, the principle of net neutrality stated in the Internet Regulatory Framework ensures equal treatment in the transportation of data packets between users. That law forbids internet access providers from discriminating data packet traffic. This ensures that the internet environment remains favorable to innovative business models, based on the digital economy.

Without net neutrality, there are greater risks to new digital enterprises and the potential for higher prices to be charged by the owners of the infrastructure networks from internet application providers and the consumers.

If the principle of net neutrality, expressly stated in the Internet Regulatory Framework, is revoked or modified, there are serious risks to the digital business environment, as well as a cost increase to internet application consumers.

The internet of things, based on the communication between machines, with significant market potential, is a future trend that deserves proper attention by Brazilian legislators. Thus, considering this new reality, the Internet Regulatory Framework may need adjustments.

To ensure legal certainty in investments in the internet of things, any changes to the Internet Regulatory Framework should be done through a bill.

Decree No. 8.771/16, that regulates the Internet Regulatory Framework, is assertive regarding the exceptional nature of any discrimination or degradation of internet traffic, due to technical requirements essential to the provision of the application's services or prioritization of emergency services.

Under this argument related to the internet of things, one must know if devices such as automobiles and traffic lights can be connected, as this would be reason enough to be characterized as emergency services prioritization, in this case related to urban traffic, an exceptional case for the flexibility of the net neutrality principle, under the terms of the Decree that regulates the Internet Regulatory Framework. Anyhow, one must only interpret the decrees in accordance with the law, without creating exceptions not stated therein.

There is another issued to examined. At first glance, there seems to be now legal prohibition to the provision of free data traffic on social networks. Thus, this business practice does not harm net neutrality, as it does not harm consumers, much less the internet applications providers.

Note that there are similarities and differences in how net neutrality is dealt in Brazil and in the USA. The similarity is due to the greater purpose of ensuring net neutrality to guarantee that it is accessible by all. The difference is in the fact that net neutrality in the USA exists only in a regulatory act by the Federal Communications Commission. Here in Brazil, net neutrality is supported by an actual law, namely, the Internet Regulatory Framework.

Within the Brazilian context, the National Telecommunications Agency (ANATEL) has the power to monitor compliance with the principle of net neutrality, as defined in the Internet Regulatory Framework and the Decree that regulates it. In the USA, however, the FCC created the norm by interpreting the North American laws on this industry.

In sum, the Brazilian Internet Regulatory Framework and the Decree that regulates it represent significant and progressive historical landmarks for Brazilian Law.

Changes to the regulation of the internet to adjust and update it to new demands are possible, of course, by enactment of a new bill. ANATEL, as the regulatory agency of this industry, cannot decide on the matter without proper legal grounds, given the principle of strict legality present in Brazilian Law, unlike law in the USA. The changes to the regulatory policy of net neutrality that may occur in the USA does not necessarily imply changes here in Brazil. Perhaps this matter deserves more reflection and debate within our country.


1 See: FCC.

2 FCC Fact Sheet. Restoring Internet Freedom, Declaratory, Report and Ordem, WC Docket n. 17-108.


*Ericson M. Scorsim is a lawyer specializing in Communications Law at Meister Scorsim Advocacia.

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