To date, proponents of a neutral internet have had relatively scant reason to raise their voices beyond anything more than a murmur in Australia. While the FCC’s Open Internet Order of 2015 has been hailed as a significant win for consumers in the US, and the wording of proposed legislation to institute ex-ante regulation of service providers is soon to be considered in the EU, Aussies have been quarantined from anything other than the fringes of the Net Neutrality debate.

However, a series of recent developments in the telecommunications industry down under looks set to change that. As recently as April of this year, the CEO of Australia’s current second largest ISP, Optus, alluded to the possibility of charging video streaming services with an Australian presence a premium fee in order to ensure that the quality of the services they delivered to end users was maintained. While it is not yet clear if, when and how this will occur, the statement raised eyebrows and will have consumer groups in the country anxious.

For those who have spent so long ensconced in discussions around maintaining a neutral internet in the US and EU, examining the emergence of the debate in its nascent stages in another part of the world is an interesting opportunity to take a step back and examine how the interplay of various factors can come together to create a fertile breeding ground for arguments around Net Neutrality to emerge.

A long way down

One of the main reasons often cited for Australia’s relative isolationism from the fervent discussions around Net Neutrality that have taken place in other parts of the world—ironically—stems from its geographic isolation from the principal hives of internet traffic in the US, EU and Asia. Internet users in the country have historically had an asymmetrically voracious appetite for accessing data from those regions rather than locally, and, with international data transmission costs to and from Australia being comparatively high, ISPs quickly sought a way to offer affordable plans to end users whilst effectively managing their own costs.

This in turn resulted in the development of a ‘user-pays’ model, where almost all service providers offered plans with monthly download caps (it was little more than a decade ago that two of the major service providers in Australia—Telstra and Optus—had many residential users on data limits of 3GB per month!). Unlike in the US, where internet access plans have typically been marketed independent of data downloaded, these caps have served as a natural way of limiting the network maintenance and upgrade costs of Australian ISPs.

Net Neutrality discussions enter the embryonic stages

In recent times, however, the user-pays model in Australia has firmly tipped in favour of consumers, particularly as the capacity of international backhaul links between Australia and the rest of the world has improved. The coming into service of the Pipe Pacific undersea cable between Australia and Guam in 2009 resulted in a substantial reduction in data transmission costs, ending the relative duopoly that the two other main backhaul links—the Southern Cross cable (between Australia and the US) and the Australia-Japan cable—possessed until that time. As a result, in more recent years data caps on end user plans have risen considerably, and there has also been an increasing availability of ‘unlimited’ data plans—all at far more affordable prices for consumers than was the case previously. But while the ability of service providers to use data caps as a potential lever to limit their costs has diminished, that has not, until relatively recently, posed significant problems.

That has begun to change as the appetite of Australians for data has grown. ACMA, the Australian communications regulator, reported a 53% increase in data downloaded by end users as between June 2013 and June 2014 . In addition, the very recent debut of video streaming services in Australia such as Netflix has continued to place upward pressure on data plans as end users continue to crave access to more high-fidelity content.

This in turn naturally means that ISPs will inevitably seek to find other ways to manage their costs, including in ways that may create issues from a Net Neutrality perspective. For example, Australia’s largest ISP, Telstra, embarked upon a trial in 2013 in which it throttled traffic generated by peer-to-peer applications for a subset of its customers. This prompted comments at the time by the competition regulator, the ACCC (the Australian equivalent of the FCC) that this type of behavior may be subject to review under the country’s existing competition laws.

Curiously, following the trial there was for quite some time little further evidence of Australian ISPs engaging in widespread traffic management practices that had the potential to raise Net Neutrality concerns. One likely reason for this is that there has generally been a strong disincentive in the past for such practices, especially given the potential for end users to churn to another service provider if unhappy with the service they were already receiving. However, the changing landscape in Australian telecommunications is rendering this a threat of diminishing magnitude for ISPs.

The rollout of the NBN – the final ingredient

A significant development in the last few years that may well prove to be the catalytic force in the emergence of the Net Neutrality debate in Australia is the country’s rollout of the National Broadband Network (NBN). While ostensibly intended to facilitate the promotion of improved levels of competition in the telecommunications industry in Australia, from its inception the rollout of a government-funded fixed line ubiquitous telecommunications network has been an extremely controversial (and, from an international perspective, relatively unprecedented) piece of government policy.

However, more relevantly for the present discussion, the rollout of the network is transforming the nature of the ISP market in the country in two significant ways. Firstly, the NBN has facilitated an increasing trend of ISPs looking to bundle and sell multiple offerings (television, internet and/or phone) together and locking their customers into long-term contracts in order to build the economies of scale that make transitioning to and delivering services over a national network a more sustainable venture.

The second aspect of this transformation is the substantial amount of consolidation occurring in the market as service providers look to build scale in their end user base in order to remain competitive as the rollout of the NBN ramps up. In June 2010—when the rollout was in its embryonic stages—there were 107 service providers in the country that had one thousand or more end user subscribers (according to the Australian Bureau of Statistics). By June 2014, that number had dropped to 71, and had also been accompanied by the emergence of a clear group of four ISPs (Telstra, Optus, iiNet and TPG) in which the vast bulk of the end user market share was (and continues to be) held. That group may reduce even further to a ‘big three’, with iiNet being subject to separate takeover proposals by both TPG and M2 Group in Australia. This would create a new second largest ISP in the country and be akin in significance to the now scuttled merger between Time Warner Cable and Comcast in the US . While the ACCC in Australia does have the ability to block mergers and acquisitions that would lead to a substantial lessening of competition, the general trend toward consolidation is not something they are in a position to prevent.

With such substantial concentration of market share in a small number of ISPs, the ability of end users to find and engage an alternate service provider becomes considerably more difficult, even if their current provider chooses to engage in practices that are potentially considered to run afoul of Net Neutrality principles. This is only exacerbated by the increasing use by Australian ISPs of long-term contracts which lock-in end users to a service provider during the NBN transition, which considerably nullifies their ability to easily and/or cheaply change service providers.

In summary, the state of the Australian market is now ripe for potential anti-Net Neutrality conduct to occur, and there are already signs that ISPs are beginning to take advantage of this: two of the major providers recently entered into unmetered streaming deals with Netflix, which later caused its CEO to express regret.

Regulation of Net Neutrality in Australia

Australia has a comprehensive set of competition laws, including a regime under its Competition and Consumer Act that specifically targets conduct that has the potential effect of substantially lessening competition in telecommunications markets. These laws could certainly be used to target any potential threat of anti-competitive conduct that also raises Net Neutrality concerns. . However, as the environment in the Australian telecommunications market has changed in the ways I have described above, and given the nation looks poised to move from the fringes to the centre of the Net Neutrality debate, there are two challenges these laws will face.

Firstly, attempting to regulate conduct that potentially runs afoul of Net Neutrality principles and competition law in an ex-post fashion will not be particularly useful in the current market in Australia, where ISPs are not required (and typically, are not) particularly transparent about their traffic management practices. This will make it more difficult for end users and other industry stakeholders to identify whether there is specific conduct an ISP is engaging in that raises Net Neutrality concerns. It is here where the introduction of a rule that requires disclosure by ISPs of traffic management practices—similar to the FCC’s Open Internet Transparency Rule, would prove particularly useful.

Second, the lack of specific Net Neutrality laws (or, in their absence, clear principles from the competition regulator) that articulate the types of conduct that will be considered to be anti-competitive is not likely to provide the industry in Australia with the certainty it will require in the long term. Inevitably, at some point discussions are likely to move toward the possibility of implementing some form of ex-ante regulation. However, much like the USA and EU, that is likely to be a long and arduous journey.

Everything old is new again

The one advantage that Australia has is that the path to reaching a dénouement in the debate around Net Neutrality is already well worn thanks to the discussions that have taken place on the matter for several years in the US and EU. These are likely to provide a useful reference point as those same discussions begin to gain momentum and intensify down under. What is less clear is whether the Australian market may offer its own unique take on how to manage the issue in the future. This is one instance where ‘watching this space’ will prove particularly fascinating.