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1 A Comparison of Network Neutrality Approaches in: the U.S., Japan, and the European Union. Kenneth R. Carter1 , J. Scott Marcus2 , Adam J. Peake3 , and Tomoaki Watanabe4

1 wik-Consult, Germany, k.carter@wik-consult.com

2 wik-Consult, Germany, s.marcus@wik-consult.com

3 GLOCOM, Japan, ajp@glocom.ac.jp

4 GLOCOM, Japan, watanabe@glocom.ac.jp Draft do not quote or cite. TABLE OF CONTENTS 1. Introduction

2 1.1. What is Network Neutrality

2 1.2. Motivation and Methodology.3 1.3. Structure of the report.4 2. Network Neutrality in the United States

4 2.1. Summary market analysis

4 2.2. Approaches to addressing Network Neutrality

5 2.3. Efficacy to date.9 3. Network Neutrality in Japan

10 3.1. Summary market analysis

10 3.2. Regulatory approaches to addressing Network Neutrality.13 3.3. Efficacy to date.17 4. Network Neutrality in the European Union

19 4.1. Summary market analysis

19 4.2. Regulatory approaches to addressing Network Neutrality.21 4.3. Efficacy to date.24 5. Discussion

27 5.1. Observations and comparisons.28 5.2. Recommendations and best practices.28 6. Conclusion.30 Electronic copy available at: http://ssrn.com/abstract=1658093

2 1. Introduction In this paper, we compare and contrast the regulatory approaches to addressing Network Neutrality in three countries which represent three roughly different approaches. In the United States, which has suffered the most obvious Network Neutrality problems, the national regulator has promulgated a set of four policy principles aimed at preserving the open characteristics of Internet. These principles ensure Internet users the rights to: access lawful content;

run lawful applications;

attach lawful and non-harmful devices;

and to have competitive alternatives. The U.S. FCC is currently considering extending those policy principles with two new ones. However, it has had significant problems attempting to codify and enforce actionable, legally binding rules. In October 2007, the Japanese MIC introduced Network Neutrality principles as an amendment to the New Competition Policy Program

2010 . The policy requires that IP networks be accessible to content, to terminal equipment, and equally to all users, at reasonable prices. Network Neutrality also includes the concept of utilizing IP networks with the proper allocation of costs, and without discrimination. This is similar in concept to the reasonable network management exception embodied in the U.S. approach. In addition, a working group of four telecom business associations was created in September

2007 to develop a Guideline for Packet Shaping . The guidelines cover basic conditions for when packet traffic shaping is permitted, including measures to cancel heavy users'

contracts. Packet shaping should only be allowed in exceptional situations. The guidelines include the basic concept that ISPs should increase network capacity in line with increases in network traffic. As opposed to crafting ex-ante rules which describe the contours of permissible network practices, EU policy seeks to constrain market power by creating sector-specific rules designed to stimulate competition. The intention behind the EU approach is that competition will punish anticompetitive deviations from Network Neutrality. We observe two approaches which seek to ex ante determine the bounds of permissible conduct by IP-based networks and one approach which eschews direct intervention in the problem. We analyse these three approaches, identifying the relative strength and weaknesses of each in the body of this paper. 1.1. What is Network Neutrality The concept behind Network Neutrality is that network operators or Internet Service Providers (ISP) treat all IP packets transmitted over their networks more-or-less equally. Network Neutrality covers a broad range of behaviours, which at the extreme are clearly acceptable or not clearly not acceptable. Among the hotly debated behaviours include the possibility that an ISP might: ? offer better performance to some Internet content than to content from other sources;