The new electronic communications and digital infrastructure regulatory framework: what does the economic evidence say? (Part 2 of 2)

On Thursday 23 October in Brussels, Oxera hosted a roundtable discussion entitled ‘The new electronic communications and digital infrastructure regulatory framework: what does the economic evidence say?’. In the second of a two-part series, we share insights from this productive debate.

The discussion took place in the context of an increasing focus on the need for change in how the electronic communications and digital infrastructure sector is regulated, building on the themes of the European Commission’s White Paper on ‘How to master Europe’s digital infrastructure needs?’,¹ the Letta report² and the Draghi report.³ All of these reports identify digital infrastructure as a strategic asset for Europe’s economic sovereignty and competitiveness, and argue for less fragmented regulation, a simplification of the rules, and a more investor-friendly environment. But what does this mean in practice? How should the regulatory framework adapt to support these goals, while preserving the competitive environment that it has facilitated?

Oxera’s roundtable, held under the Chatham House rule, stimulated a lively and engaging debate among 30 senior stakeholders including senior members of the European Commission (DG Connect), the Body of European Regulators for Electronic Communications (BEREC), national regulatory authorities, telecoms operators and key digital players.⁴

The event was opened by Oxera Partner Felipe Flórez Duncan, with Principal Michael Weekes chairing session 1 entitled ‘The future of ‘significant market power’ (SMP) regulation’ and Senior Adviser Johan Keetelaar chairing session 2 entitled ‘The economics of the wider internet value chain—to regulate, deregulate or stimulate?’. The full briefing paper for the event can be found here.

This article describes the discussion from session 2. It focuses on the interplay between traditional electronic communications providers and content application providers (CAPs) and on the economic effects of the Open Internet regulation. Part 1 of this series focused on the discussion from session 1 and the proposals for adjustments to the significant market power (SMP) regulatory regime and access regulation.

The anticipated next step is that the European Commission will publish its draft Digital Networks Act in January 2026, which is expected to provide initial answers to many of the questions discussed at the event.

Proposals for reform

The Commission has suggested that the upcoming Digital Networks Act might include some changes to the current regime overseeing ‘net neutrality’ and the ‘Open Internet’ and the application of regulation to the wider internet value chain.

Net neutrality is the principle that internet service providers (ISPs) should treat all internet traffic equally. It ensures that all users have equal access to online content without ISPs prioritising certain services. This prevents ISPs from charging consumers extra for access to certain websites or creating ‘fast lanes’ for those who pay more, which is intended to keep internet access affordable and equitable

While the Commission will continue to support net neutrality principles, there is the suggestion that the upcoming Digital Networks Act will include some changes to the current regimes overseeing Open Internet and IP interconnection markets to:⁵

(i) [create] effective cooperation among the actors of the broader connectivity ecosystem giving the empowerment of NRAs/BEREC to facilitate cooperation under certain conditions and in duly justified cases; and (ii) [provide] a clarification of the Open Internet rules concerning innovative services, e.g. by way of interpretative guidance, while fully preserving the Open Internet principles.

The Commission’s suggestion that there is ‘a lack of legal clarity of the Open Internet Rules concerning the regulatory treatment of innovative services’, and that there are ‘challenges in the cooperation between the various digital players in the digital infrastructure ecosystem’,⁶ guided our discussion at the roundtable event.

Key themes from the roundtable discussion

Session 2 of the Oxera roundtable facilitated a nuanced debate, with participants expressing differing views on whether current rules appropriately balance innovation, investment incentives, and protection of the Open Internet.

Does the Open Internet Regulation restrict beneficial innovation?

Overall, net neutrality is, among other things, intended to level the playing field for startups and smaller companies. Without net neutrality, some say, large firms could pay for faster delivery, stifling competition from new entrants who might not be able to afford premium access. By preventing these outcomes, net neutrality can foster innovation, ensuring equal opportunity for all content providers. ISPs, on the other hand, claim that prioritising traffic could incentivise innovation by allowing them to fund network improvements, and it allows for more innovative propositions.

During the roundtable debate, there was discussion about whether the Open Internet Rules (OIR) provide sufficient flexibility for ISPs to innovate in network management and service offerings.

Concerns were raised that the current rules, written over a decade ago, do not reflect today’s network realities. Modern networks must support multiple use cases simultaneously—not just consumer services, but business services requiring specific quality characteristics, cloud applications, and potential future services requiring very high bandwidth, very low latency, or other technical priorities. The challenge is that networks now serve as shared infrastructure providing multiple use cases, creating a need for traffic management capabilities that may not have been envisaged when the regulation was drafted.

From an ISP perspective, businesses increasingly need tailored services, and operators seek the ability to offer a menu of services that could meet these different needs, which could help support innovation and economic growth in the EU. Similarly, allowing for greater price discrimination across the range of services offered could lead to welfare enhancing outcomes. However, concerns were expressed that the Open Internet regulation constrains this ability.

In the extreme, critics have argued that the current OIR in Europe prevent the provision of innovative services. For example, a recent report from the Centre on Regulation in Europe (CERRE) identified a risk that the current interpretation of the OIR in Europe could prevent operators from offering distinctive 5G services, undermining the other Commission objectives for 5G.⁷

The UK’s approach was referenced as a potential model. Ofcom has provided more clarity in its guidance to allow broadband and mobile providers to offer premium quality packages supporting applications requiring low latency, develop new ‘specialised services’ that could support emerging technologies, use traffic management measures to avoid congestion, and offer zero-rating packages in most circumstances.⁸ This approach aims to balance preserving net neutrality principles with enabling beneficial innovation.

There was general agreement at the roundtable that further clarity on the OIR in Europe is needed, particularly on its rules concerning innovative services (as indicated in the Digital Networks Act Call for Evidence). However, while further guidance on the interpretation of existing regulations could be supportive, there was a discussion on the limitations of guidance, in particular that guidelines are not legally binding and thus may not be enough to unlock the scope for innovative services or charging models.  

Several options were discussed about how to achieve better outcomes beyond further guidance. For example, explicit recognition of what services are considered ‘specialised services’, the specification of some ‘safe harbours’ where a degree of differentiation is acceptable, and enshrining this through changes to the underlying regulation, or offering further clarity provided through a delegated act, to provide the greater legal certainty stakeholders are calling for.

Understanding the ISP-CAP relationship: cooperation or market failure?

A critical theme was whether the relationship between ISPs and CAPs is functioning well or requires regulatory intervention.

Participants emphasised the largely cooperative nature of ISP-CAP relationships in practice. Day-to-day cooperation and discussion between CAPs and ISPs occurs on network development plans and traffic patterns, with close collaboration at a technical level. Commercial peering and IP interconnection arrangements typically work well, with BEREC studies showing very few disputes arising in these markets.

However, some parties expressed concerns that there was a fundamental asymmetry in the regulatory framework. While ISPs face obligations to carry all internet traffic under net neutrality rules, they cannot impose charges on CAPs whose commercial decisions might dramatically increase network traffic. This creates a situation where CAPs making decisions that result in substantial increases in network traffic face no economic signal to consider the impact of those decisions on network operators.

This relates to the ‘must carry’ obligations imposed on ISPs. ISPs must carry all traffic, but CAPs face no obligation regarding how they offer content or to consider the network impact of their delivery decisions. Some participants viewed this as a regulatory failure that undermines incentives for efficient network use and sustainable investment.

Different interpretations of market evidence emerged during the discussion. The absence of disputes and cooperative relationships that have developed were cited as evidence that the market functions well. However, questions were raised about whether the absence of disputes truly indicates market health, or whether the time and resources needed to pursue disputes, or simply ambiguity in the OIR, mean disputes are not raised and problems go unaddressed.

Proposals for dispute resolution mechanisms: solution or distortion?

Following from the ‘fair share’ debate, the question has been posed whether introducing a ‘dispute resolution mechanism’ for commercial negotiations between ISPs and CAPs would unlock investment or impose an additional regulatory burden without clear justification. The roundtable discussion revealed scepticism about such proposals from several parties, although others were more optimistic.

From a CAP perspective, participants questioned the value of establishing a dispute resolution system, arguing that the market already functions well and that creating such a framework risks derailing what currently works effectively. In contrast, other participants considered that a dispute resolution framework to facilitate commercial negotiations between network operators and CAPs for traffic conveyance would incentivise a reduction in inefficient internet traffic while ensuring a fair compensation for costs incurred in conveying the traffic.

From a regulatory perspective, forced negotiation with the regulator serving as dispute resolution arbitrator was viewed as often less than ideal, particularly for regulators themselves. This highlights the practical challenges regulators face in adjudicating highly technical commercial disputes in rapidly evolving markets.

A distinction was drawn between commercial negotiations with and without legal obligations. The concept of dispute settlement typically applies where there are obligations to enforce; without these, agreements remain genuinely commercial. The discussion, therefore, suggested that dispute resolution mechanisms work best where there are clear regulatory obligations and standards against which to assess disputes. In their absence, such mechanisms risk either being unused or being exploited strategically in ways that distort commercial relationships.

As such, there is a link with the discussion in the previous section. If there is a regulatory failure and CAPs have limited incentives to internalise externalities from their data traffic decisions, any new obligations imposed to address that failure, might need to be accompanied by the involvement of a competent authority to intervene and resolve disputes.

The ‘same services, same rules’ debate

An overarching question touched on the principle of ‘same services, same rules’, particularly given convergence between traditional telecoms operators and large tech companies.

However, the discussion revealed the complexity of determining what constitutes ‘the same’ services. CAPs invest significantly in private networks and build out infrastructure as far as possible toward end users, suggesting that they play a complementary rather than identical role to ISPs. The Oxera briefing paper noted that technological change triggers the emergence of new business models in the electronic communications services sector, making simple comparisons increasingly difficult.

The regulatory framework creates what some view as fundamental asymmetries. Rights coexist with obligations throughout the regulatory framework, and this is not specific to telecoms. The question becomes less about applying identical rules to similar services and more about ensuring regulatory balance across different but interdependent actors in the value chain.

Concerns were also raised about the implications of any rollback of net neutrality protections. If net neutrality rules were weakened, questions arise about whether operators would have discretion to decide what traffic is more important and how such decisions would be made.

What does this mean for future regulation?

The session 2 discussion, while more exploratory than session 1, revealed important considerations for policymakers as they develop the DNA:

On OIR and innovation: There is genuine tension between maintaining core net neutrality protections and enabling beneficial innovation in network management and service differentiation. While concerns exist that current rules (or, at least the ambiguity and scope for misinterpretation of the current rules) may unduly restrict innovation, others maintain the framework functions well with appropriate guidance. The challenge is providing legal certainty for investment while preserving the Open Internet. Different approaches—from BEREC guidance to Commission delegated acts to legislative change—offer varying degrees of certainty and flexibility.

On ISP-CAP relationships: The largely cooperative nature of current relationships suggests caution before introducing new regulatory frameworks. However, the identified asymmetry in ‘must carry’ obligations raises questions about whether current arrangements provide appropriate incentives for efficient network use and sustainable investment. Understanding whether these represent market failures requiring intervention requires careful economic analysis.

On dispute resolution: Without clear regulatory obligations to enforce, dispute mechanisms risk creating more problems than they solve, potentially distorting well-functioning commercial relationships. However, if changes are made to obligations to correct any substantiated regulatory failures, this might justify the role of a competent authority to intervene and resolve disputes.

Key takeaways

Three overarching messages emerged from the session 2 discussion:

• Evidence-based policy is essential. Claims about regulatory failure, market dysfunction, or competitive imbalances must be rigorously tested against market evidence. The largely cooperative ISP-CAP relationships and low levels of disputes in IP interconnection markets suggest caution before assuming markets are failing.
• Regulatory changes need clear justification. As with SMP regulation discussed in session 1, departures from established regulatory frameworks must be carefully justified. New regulatory instruments such as dispute mechanisms should only be introduced where market failures are clearly identified and alternative solutions exhausted.
• Balance and proportionality matter. Any evolution of the Open Internet framework must balance multiple objectives: protecting the Open Internet, enabling beneficial innovation, ensuring sufficient investment incentives, and maintaining sustainable competition. Getting this balance right requires understanding the complex interdependencies across the internet value chain.

As the Commission develops its Digital Networks Act proposals, these principles—evidence-based analysis, clear justification for intervention, and balanced consideration of multiple objectives—should guide the evolution of regulation affecting the wider internet value chain. Any intervention in the increasingly important interactions between traditional electronic communications providers and CAPs must be based on evidence and clear rationale.