Background: Net neutrality and internet pricing
- First: Commercial practices harmful to net neutrality
- Second: What do we know about internet pricing in Egypt?
- Third: The pricing gap between mobile broadband and fixed-line broadband
- Fourth: Quotation problems
- Fifth: Internet service equipment charges
Conclusion and recommendations
This paper analyzes the legal frameworks for regulating internet pricing in the United States and the European Union countries. It also analyzes the most prominent judicial rulings issued by EU courts regarding the pricing of internet service and equipment, and the relevant recommendations these courts made over the past two years after net neutrality rules came into effect in 2015.
The paper relied on economic and legal studies and analyses related to internet pricing, in addition to the Egyptian Telecommunication Regulation Law No. 10 of 2003, and the regulatory and guiding rules related to the pricing of various internet services, including the fixed-line broadband and the mobile broadband. The paper also relied on international development reports on the status of internet governance, service quality and pricing in Egypt, with a general survey of the available data on price plans of the internet providers operating in Egypt, especially the three major ones, namely Vodafone, Orange, and We.
Internet and telecommunication services in Egypt are growing, reaching various sectors and areas across the country. Decision-makers are planning to expand these services in the future, as this will help develop the communications and information technology sector in Egypt. Of course, it is not possible to imagine the increasing spread of internet technology without addressing the issue of internet pricing, and the policy of setting prices for different users in the country.
Some telecommunication officials argue that Egypt has adequate internet prices compared to the global rates. If this is true, it requires caution amid the problems surrounding internet prices, which may affect the volume of internet use in Egypt, as well as the information sector’s chance to flourish economically.
This paper looks into the key challenges facing the regulation of internet service pricing in Egypt. Decision-makers and telecommunication officials can overcome these challenges by adopting pricing policies based on net neutrality standards. These standards guarantee increased opportunities for citizens to access the internet, fairness in reaping profits from internet users, and prevention of monopoly in the provision of internet service. Hence, the maximum benefit will be achieved with all the economic potentials the telecommunications and information technology sector has.
Background: Net neutrality and internet pricing
One of the three main pillars of the concept of net neutrality is the principle of prohibiting discrimination in processing requests for data passing through internet networks on a financial basis. In 2003, law professor Tim Wu noticed that companies had carried out some legally and regulatorily overlooked practices, such as offering varying and hierarchical pricing schemes within the same network, which is known as commercial packages of prices, starting from the main price of broadband and increasing based on the difference in the quality of the same service.
Service prices may vary according to each application under claims that each of them requires a different advanced or simple level of quality, which the internet providers work on. Tim Wu also pointed to companies’ discriminatory practices against requests to access certain content or websites for some reasons. These include the fact that some service providers have common interests with competing websites. At one extreme, discrimination could be motivated by the fact that certain content belongs to the same economic group as the internet provider, meaning that it’s all governed by commercial and economic considerations. The problem of pricing and its discrepancy is most evident in the case of streaming services, which internet providers may set at a price higher than that of other data.
Net neutrality came amid these developments to emphasize the prevention of discrimination in the processing of requests to access various data on the internet, on the basis of what content creators pay to get priority. This practice is detrimental to the service, its users, and emerging applications that do not have financial resources to get priority of processing access requests. There are several points that explain how to ensure non-discrimination in pricing, as follows:
- Preserving the consumers’ freedom of absolute choice while using internet technology without any influence on their decision based on financial considerations, whether directly or indirectly
- Protecting economic competition in the communications and information technology market, especially the sector of content development, applications and technical equipment, against monopoly or attempts to exclude some parties from the economic market
- Ensuring that consumers are aware that the internet service is affordable, so they can expand the use of broadband service
First: Commercial practices harmful to net neutrality
Some practices conflict with the principle of net neutrality and fairness of data processing. These practices, even though they are commercial, harm net neutrality and the internet market. They exist in varied forms in internet markets around the world.
The first and most well-known of these practices is what the 2015 US Open Internet Order called “paid prioritization”, which means that content producers pay internet service providers (ISPs) to get priority in processing requests to access their websites at high traffic times. This practice harms content providers who are unable to pay, as it limits their chances of reaching out to the consumers.
This practice prompts ISPs to adopt a binary network model made up of slow lanes and fast lanes, with the latter being reserved for those who can pay more and who are given priority in responding to requests.
This has to do with the term Quality of Service, which means ensuring quality by paying a fee as long as there are websites or services that have priority access. Meanwhile, other services remain far from this quality, as determined by ISPs within the framework of traffic management.
Some ISPs try to increase investment by developing the design of their networks and adopting designs that tend to distinguish between applications and content, according to quality considerations, as opposed to older generations of network designs that tended to treat applications and content alike.
There is another practice called “zero-rating”, which means that an ISP applies a price of zero to the data traffic associated with a particular application or class of applications, and the data does not count towards any data cap in place on the internet access service. This practice actually leads to an increase in the demand for some websites or applications, but it harms other applications by reducing the demand for them.
This policy seems attractive to a segment of ordinary consumers. However, studies assessing the impact of this practice revealed that it may lead to an increase in the price of internet service. In countries that adopt zero-rating, the price of internet service continues to rise.
Meanwhile, the term “price differentiation” means charging a higher price for data consumption when using a particular application or class of applications, while charging a lower price for other applications. Although the debate continues in the United States about the limits of this practice and the appropriate adaptation to it, it is mainly rejected in EU countries, as revealed by the Guidelines on the Implementation by National Regulators of European Net Neutrality Rules issued in 2016.
This practice harms economic competition, as it leads some applications to refrain from work while similar applications that are subject to higher pricing are developed. It also harms the consumers’ choice in accessing this type of applications and deprives them of their existence, thus affecting the seriousness of demand.
Second: What do we know about internet pricing in Egypt?
Despite the improvement in the regulation of the internet market in Egypt, the legal regulation of the service in general remains relatively late. The regulation of this sector revolves around one basic law, namely the Telecommunication Regulation Law No. 10 of 2003. This means that the law and its subsequent amendments do not necessarily reflect the global trends in the debate about the internet, the future of its regulation, and of course the debate about net neutrality.
The law refers casually to the issue of internet pricing, leaving the details to the executive regulations, which in turn have the same problem, as in the case of granting licenses to operate in the internet market in Egypt. The licenses granted to the companies wishing to provide internet or data services in Egypt are divided into four main categories:
- Internet Connectivity (Class A) & VoIP Services Provision Licence: It allows the licensed company to provide services for end users directly, and VoIP services for companies, institutions and agencies only.
- Internet Connectivity (Class B) Services Provision Licence: It allows the licensed company to transmit local and international information to the end user, whether individuals, companies, or institutions, without being linked to the public internet and without transmitting telephone calls, with the ability to provide services of interconnection between the end user’s closed private networks using the internet protocol.
- Global Peering Services Infrastructure Construction Licence (with ISPs, Data & Content Services): It is a license to establish the infrastructure to allow connectivity between licensed ISPs on the one hand and content service providers on the other hand, which is known as “global peering”.
- Arabic Domain Names (Registrar) Services Provision Licence (Under International Top-Level Domain): It is a license to provide the service of registration of internet domain names in Arabic under the international top-level domain (TLD).
The current regulatory framework – represented in licenses – has some gaps and loopholes in the issue of pricing, which places the price policies in Egypt away from net neutrality and the global trends in this regard, due to the lack of clear details about net neutrality and its management. These gaps include the following:
- The lack of a clear pricing scheme: The Telecommunication Regulation Law No. 10 of 2003 refers casually to the issue of internet pricing, leaving the details to the regulations and guidelines. The pricing system stipulated in the law is based on general and broad objectives. For their part, the authorities concerned with regulating telecommunications in Egypt (the National Telecom Regulatory Authority and the Ministry of Communications) announce in all their publications and bulletins a number of general objectives related to pricing. These include ensuring free competition, and ensuring that companies will adhere to reasonable prices, while adhering to the economic prices of services for the sake of free competition between companies without monopoly. Despite the emphasis on these goals, the nature of the tools that will be relied upon to ensure their achievement remains unclear.
The guidelines for granting licenses to ISPs in Egypt do not detail any economic method or model that will be followed in setting service prices. International experiences indicate that there is more than a method, such as usage-based pricing, flat rate pricing, pricing that is higher than what the user would pay to the service provider, and finally pricing supported by both the user and the service provider. None of these methods is applied in Egypt.
These licenses also give a great deal of freedom to ISPs to determine the pricing scheme they see fit, provided that this scheme will be approved by the National Telecom Regulatory Authority (NTRA). This places some restrictions on ISPs to ensure fair collection of revenue from end users, which poses a threat to net neutrality because, in theory, it means that consumers would have little freedom to choose from among different pricing methods.
ISPs themselves do not clearly detail their pricing policies. Moreover, neither the companies nor the data of official telecom devices provide any details about the nature of the design of their networks. These networks could be sensitive to the data passing through them, and therefore the requests sent to them are treated differently, or could be less sensitive to different types of content and applications, such as application-agnostic networks. This is very important in determining whether the collection of revenue and the service prices paid by users are truly justified, given the technical limitations of each network.
The ISPs’ advertisements and websites suggest that they mostly adopt the usage-based pricing policy. However, internet pricing in Egypt remains a vital issue for discussion. There is need for clear legal and regulatory texts in this regard, especially as internet pricing has to do with an important and vital economic sector in the country.
- Single market: The trend of many countries and legal and technical experts towards net neutrality over the past decades has become driven by the protection of competition in the content and application development market, which the end users deal with directly. It is the goal for which end users resort to ISPs to access that content. In Egypt, the situation is different, as the guidelines and ISP licensing rules reveal a great deal of understatement in viewing the internet market as a market for ISPs, followed in importance by end users.
In general, this vision is problematic because it reflects a significant delay in realizing the nature of the internet market in various countries in the world, which considers content creators as a segment no less important than ISPs. Moreover, the content development sector is fragile vis-à-vis major telecom companies, something which requires intervention and protection from telecom regulators.
Only the “global peering” licences refer clearly to content creators. These licenses are granted to intermediary companies that develop telecom infrastructure to link other actors, namely information transmission providers and ISPs on the one hand, and content service providers on the other hand. Amid the lack of sufficient information about this type of licences, there remain potential pricing problems that could limit the progress of the content market and have negative impact on the average user.
This – in theory – suggests that there are agreements between ISPs and content providers, which of course aim to regulate the latter’s access to the internet. These agreements, if proven to exist, will affect net neutrality as well as competition in the applications market, as they give some good opportunities to access the internet compared to other applications or content that cannot enter into similar agreements. These agreements also pave the way – in theory – for fast lanes, by connecting content providers and ISPs through certain networks. Such loopholes in the regulatory and legal aspect need to be addressed.
The sector of application developers and content creators has a relative economic advantage that can be invested in if the decision makers in Egypt realize it. This sector, by virtue of its economic scope, has greater opportunities for growth and also has more competitive opportunities for new players, compared to ISPs that operate in a huge economic scale that requires huge resources, which may not be available to many other companies. The entry of new players into this sector would push it to expand vertically not horizontally.
- Lack of details on the nature of the possible and available services: It is unimaginable that there will be a serious discussion about net neutrality and the service pricing policy without clarifying the nature and prices of the services provided by internet companies to users. In general, the legal frameworks and guidelines in Egypt clearly tend to be different from global trends in terms of classifying the internet services, or by remaining silent about the classification of some services.
There are many internet services and they are organized in the form of main groups containing sub-services. These include communication services, which in turn include several services like e-mail services, and information retrieval services, which include the File Transfer Protocol (FTP), video conferencing, the World Wide Web, which is concerned with browsing of various files and documents, and Web services, which allow the transition between different applications and their interaction with each other.
In Egypt, none of the aforementioned licenses provide details about the exact services included in each license, although there are some confusing and unclear details. For example, Class A license authorizes the provision of VoIP services, such as Viber and Skype, for companies, agencies and institutions only, which is confirmed by observers and ordinary internet users.
The legislative and regulatory frameworks in Egypt do not distinguish between internet services and “specialized services”, which by their nature require different processing of data and access requests. The net neutrality rules in the EU countries and the United States require internet regulators and ISPs to distinguish between these services and their respective pricing methods.
In Egypt, IPTV – which is a specialized service – exists without being clearly addressed or classified by the regulatory rules. The confusion also extends to another service such as WAP, which technically belongs to the older generation of mobile internet services. It is classified in Egypt under the category of enhanced services, which are not internet services. Therefore, it is subject to a different and higher price within the value-added services category. This raises the question about which category of services, prices and taxes it falls under.
It is difficult to extract information from these licenses in light of the fact that major ISPs own more than one of these licenses. The three major players in Egypt, namely We, Vodafone and Orange, as well as their subsidiaries, own Class A, Class B, and Registrar licenses, making it difficult to truly estimate the cost.
Third: The pricing gap between mobile broadband and fixed-line broadband
The prices of internet services, especially the mobile broadband, in Egypt are reasonable and suitable for a large segment of users compared to international rates. However, the prices of fixed-line broadband are high compared to international rates. Egyptians spend 3% of their annual income on fixed-line internet service, which is a high rate, given the rates of wages in the country.
The Central Agency for Public Mobilization and Statistics (CAPMAS) revealed a decline in the use of fixed-line internet service over the past months for several reasons, including the high cost of the service and the equipment used. This restricts users’ freedom and leads them to resort to the mobile internet because of its lower cost.
Meanwhile, the users of both mobile and fixed-line broadband services are not notified about the minimum and maximum prices of their consumption. There is also no information about the path that the service will follow after the consumption reaches its maximum, or the type of services that are exempted in this case. Internet regulations in the United States and the EU countries separate between the rules governing both fixed-line and mobile internet, which is not the case in Egypt.
Fourth: Quotation problems
Perhaps the first challenge in the issue of pricing and its impact on users is the lack of transparency about the detailed contractual requirements for the quotation and price packages offered by internet companies. This comes within the framework of promotional and not contractual offers, and accordingly does not clarify the limits of the users’ package consumption or the level of service expected to be provided.
There are discrepancies in the price packages offered by ISPs, which follow the same pattern of having a basic package or threshold for the service, followed by other ascending price packages for the same service or application, which is most evident in mobile internet offers.
The advertisements for these packages are mostly based on a certain amount of data that users can use. However, there is still silence and confusion about how to deal with different access requests at traffic times, especially as the mobile networks are more vulnerable to traffic than the fixed-line ones. The presence of different, hierarchical offers within the same network weakens the basic service, amid the availability of other alternatives, which leads users to subscribe in higher-price packages to get a better service.
Fixed-line broadband also suffers from disparities, in light of the presence of high-speed fibre-optic lines and copper lines that do not accommodate the advanced speeds. Therefore, it is not possible to justify the single price package for both fibre-optic and copper lines, despite the difference in service and quality.
On the other hand, there is no rule that allows the zero-rating system to work in Egypt, but the “Watch It” platform, a video on-demand service owned by a company affiliated with the General Intelligence, benefits from the zero-rating policy. This means that this platform can reach a greater number of subscribers at the expense of other similar platforms. Some companies, moreover, make use of the zero-rating practice by making continuous offers for temporary packages at discounted prices to consume certain applications or content, or allowing consumption of a specified amount of data units at discounted prices outside the usual price package.
Fifth: Internet service equipment charges
The principle of net neutrality is based on ensuring fair processing of all data and requests for access to content without discrimination on the basis of the identity of the sender or recipient, the nature of the content sent – as long as it is legal – or the nature of the equipment used to transmit the data. Here, another challenge arises, which has to do with the ISPs’ expansion in advertising the rental of high-speed routers for home use in order to ensure a higher internet speed.
This may sound good in theory, but it limits the end user’s choices of the devices and equipment used to connect to the internet in order to ensure a reasonable quality of service. This comes with pricing challenges, as it enhances disparities among users in terms of their ability to acquire these devices and equipment.
This has negative implications for both the end user and the router and modem market. These practices cause the products of certain companies to dominate the market.
Conclusion and recommendations
Instead of adopting the classic method of free competition in the telecom market, there is an increasing need to accommodate the consumers and businesses that tend to rely increasingly on the internet. Pricing is a decisive factor for these categories to use and develop the service.
So, rethinking a new solution to the issue of pricing would help maintain the technology as a tool for economic empowerment and promotion of entrepreneurial activities, and would also view the internet as an essential means of realizing other human rights. In this regard, AFTE puts forward the following recommendations:
- The House of Representatives and the Senate should ensure in the relevant laws a separation between the rules governing the mobile internet and those governing the fixed-line internet, provided that the regulation of both shall clearly obligate the telecom and internet companies to indicate the minimum and maximum limits of downloads.
- The House of Representatives and the Senate should curb the zero-rating practices, because of the damage they cause, which includes the exclusion of competitors from the market, as some internet companies prefer some platforms or content to others.
- The House of Representatives and the Senate should set a clear limitation on vertical integration between content platforms and ISPs, by enacting a special clause that prevents conflicts of interest in this regard.
- The National Telecom Regulatory Authority should reconsider the issue of granting licenses to internet companies, and the conditions established in this regard, in terms of detailing the services available in each license, and defining the networks that fall under each license.
- Any net neutrality legislation in the future should ensure the disclosure of the design of the different networks adopted by ISPs. It should clarify whether they are application-agonistic networks or others, as this information has a role in guiding the discussion about the appropriate pricing policy in view of the ability of each network to manage its traffic or treat the data in a unilateral, indistinctive manner.
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