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3 ? assess a surcharge where a customer wants to reach certain Internet content with better-than-standard performance;

? permit access only to affiliated content, and block access to unaffiliated content;

? assess supracompetitive surcharges for the use of certain applications, or of certain devices;

? disallow outright the use of certain applications, or of certain devices, especially where those applications or devices compete with services that the integrated ISP itself offers and for which it charges;

and ? erect tollgates in order to collect unwarranted charges from unaffiliated content providers who need to reach the integrated ISP'

s customers. Several observers have concluded that deviations or violations against the principle in terms of operator applying different treatment to IP packets associated with different services, applications, destinations or devices treating network traffic differently to be inherently anticompetitive, welfare-diminishing, or simply unfair. Nonetheless, in many instances, it is perfectly fair to provide preferential treatment to some network uses, say premium customers or emergency services. In determining which behaviours are tolerable and which are not, regulators have to look at not whether the practice is unfair, but rather at the potential harms, such as the extortion of rents, tying and bundling, etc. The challenge of determining what is acceptable and what is not is made more difficult by the fact that these behaviours can be insidious and difficult to detect. Network operators are loathe to disclosing the precise contours of their network management for legitimate reasons of competitive advantages and network security. Further, most Internet subscribers are not sophisticated enough to detect most deviations from Network Neutrality directly. 1.2. Motivation and Methodology The Network Neutrality debate has generated much heat, but not much light. The debate reflects concerns that a network operator'

s application of different and treatment to IP packets would result in harm to consumers or even a general welfare loss to society. However, many of the concerns that have been raised in regard to Network Neutrality relate to behaviours that, in the absence of market power, would tend to enhance consumer welfare. In a competitive market, these practices would be entirely appropriate. Competition is one of four essential ingredients for mitigating the negative impacts of deviations from Network Neutrality. The other three are: well informed consumers;

low switching costs;

and economic feedback loops that provide proper incentives. The presence of these four factors means that regulators have less work to do in order to ensure that welfare-enhancing differentiation does not devolve into welfare-diminishing discrimination.

4 In an environment of increasing rhetoric and decreasing analysis (at least in the U.S.), we seek to provide regulatory guidance to address Network Neutrality concerns. We do so by reviewing and evaluating the approaches in the U.S., Japan and the EU. We apply the same analytical framework to each country. We then review that framework to identify best practices. 1.3. Structure of the report This report proceeds as follows. In Sections 2, 3and 4, we review regulatory approaches to network Neutrality in the U.S., Japan and EU, respectively. Sections 2,

3 and

4 are all structured to have three similar subsections. In the first subsection, we provide a brief discussion of the market in each country and the competitive state of play. In the second, we address the legal and regulatory undertakings to address Network Neutrality. The third subsection discusses the efficacy of the legal and regulatory responses and some of the prospects going forward. Following the review, we compare and contrast those approaches in Section 5. Finally, in Section 6, we offer our conclusions. 2. Network Neutrality in the United States 2.1. Summary market analysis In discussing Network Neutrality issues, the discussion tends to focus exclusively on access network issues because this is where competition is the most problematic. In the U.S., the market for residential broadband has been growing increasingly concentrated. In the early- to mid-1990s, there were hundreds of small, regional ISPs providing dial-up Internet access using the PSTN. Since the introduction of cable modem service in