REPORT June 2021 Jan Krämer Richard Feasey The project, within the framework of which this report has been prepared, was supported by the following members of CERRE: ARCEP, BIPT, Bakom, Facebook, Huawei, and Qualcomm. However, they bear no responsibility for the contents of this report. The views expressed in it are attributable only to the authors in a personal capacity and not to any institution with which they are associated. In addition, these views do not necessarily correspond either to those of CERRE, or of any sponsor or of any other member of CERRE. As provided for in CERRE's by-laws and in the procedural rules from its “Transparency & Independence Policy”, this report has been prepared in strict academic independence. © Copyright 2021, Centre on Regulation in Europe (CERRE) [email protected] www.cerre.eu June 2021 | Device neutrality: openness, non-discrimination and transparency 2/65 Table of contents About CERRE .................................................................................................................... 4 About the authors ............................................................................................................ 5 Executive summary .......................................................................................................... 6 1 Introduction ............................................................................................................ 11 2 The internet access value chain ............................................................................... 15 2.1 Layers of the internet access value chain ................................................................. 15 2.2 Interfaces and standards connecting the layers ........................................................ 18 3 Possible device neutrality issues along the internet access value chain .................. 21 3.1 Smartphones and the termination monopoly ............................................................ 21 3.1.1 Smartphones as key devices for general internet access ........................................... 21 3.1.2 Termination monopolies: Ex-post market power in ex-ante competitive markets ........ 22 3.2 The hardware layer ............................................................................................... 23 3.2.1 Market overview .................................................................................................... 23 3.2.2 Possible issues ....................................................................................................... 24 3.3 Issues at the operating system layer ....................................................................... 25 3.3.1 Market overview .................................................................................................... 25 3.3.2 Possible issues ....................................................................................................... 28 3.3.3 Application discovery layer ..................................................................................... 31 3.3.4 Application layer .................................................................................................... 37 3.4 Overview of conduct concerns ................................................................................ 37 4 Arguments to justify ‘non-neutral’ conduct ............................................................. 40 4.1 Innovation and investment .................................................................................... 40 4.2 Security and privacy ............................................................................................. 43 4.3 Harmful content ................................................................................................... 43 5 Policy recommendations .......................................................................................... 46 5.1 Key objective: Ensuring alternative routes to content for consumers ........................... 46 5.2 Interventions at the Operating System Layer ........................................................... 49 5.2.1 Enabling side-loading of apps.................................................................................. 49 5.2.2 De-installation and user consent for pre-installed apps ............................................. 50 5.2.3 Transparency about APIs and Monitoring of Standards .............................................. 52 5.2.4 Data portability for devices ..................................................................................... 53 5.3 Interventions at the Application Discovery Layer ....................................................... 55 5.3.1 Enabling alternative app stores ............................................................................... 55 5.3.2 Unbundling of the dominant app store for compatible operating systems .................... 57 5.3.3 No self-preferencing in browsers and app stores....................................................... 58 5.3.4 Transparency and redress mechanisms for dominant app stores ................................ 60 5.4 Interventions at the Hardware Layer ....................................................................... 61 6 Conclusions ............................................................................................................. 62 June 2021 | Device neutrality: openness, non-discrimination and transparency 3/65 About CERRE Providing top quality studies and dissemination activities, the Centre on Regulation in Europe (CERRE) promotes robust and consistent regulation in Europe’s network and digital industries. CERRE’s members are regulatory authorities and operators in those industries as well as universities. CERRE’s added value is based on: • its original, multidisciplinary and cross-sector approach; • the widely acknowledged academic credentials and policy experience of its team and associated staff members; • its scientific independence and impartiality; • the direct relevance and timeliness of its contributions to the policy and regulatory development process applicable to network industries and the markets for their services. CERRE's activities include contributions to the development of norms, standards and policy recommendations related to the regulation of service providers, to the specification of market rules and to improvements in the management of infrastructure in a changing political, economic, technological and social environment. CERRE’s work also aims at clarifying the respective roles of market operators, governments and regulatory authorities, as well as at strengthening the expertise of the latter, since in many Member States, regulators are part of a relatively recent profession. June 2021 | Device neutrality: openness, non-discrimination and transparency 4/65 About the authors Jan Krämer is a CERRE Academic Co-Director and Professor for Information Systems at the University of Passau, Germany, where he holds the Chair for Internet & Telecommunications Business. He has a diploma degree in Business Engineering and Management, and a Ph.D. in Economics, both from the Karlsruhe Institute of Technology. He has published numerous articles in the leading journals in the areas of Information Systems, Economics and Marketing. His current research interests include the regulation of telecommunications and internet markets, as well as digital ecosystems and data-driven business models. Richard Feasey is a CERRE Senior Adviser, an Inquiry Chair at the UK’s Competition and Markets Authority and Member of the National Infrastructure Commission for Wales. He lectures at University College and Kings College London and the Judge Business School. He has previously been an adviser to the UK Payments Systems Regulator, the House of Lords EU Sub-Committee and to various international legal and economic advisory firms. He was Director of Public Policy for Vodafone plc between 2001 and 2013. June 2021 | Device neutrality: openness, non-discrimination and transparency 5/65 Executive summary Two decades after the net neutrality debated started, the internet ecosystem has evolved and additional gatekeepers have emerged. In order to access content from content and service providers (CSPs), consumers have to pass through a whole internet access value chain, comprised of broadband providers, device manufactures and online platforms. Today online platforms, such as search engines, online marketplaces and other online intermediation services also play an important role in the consumer’s discovery and choice of CSPs. Likewise, devices (such as smartphones and connected speakers) and the software (such as operating systems and apps) that runs (or does not run) on them can significantly impact the consumer’s access to and choice of online services. In this report, we discuss whether, ‘openness’, ‘non-discrimination’ and ‘transparency’, which are the key pillars of net neutrality regulation, should be regulatory principles that also apply at other layers of the internet access value chain and specifically to certain types of devices. The issue of device neutrality has been put to the forefront of the policy debate by ARCEP, the French telecoms regulator, who argued that devices through which services and content on the internet are accessed (e.g., smartphones, tablets, connected speakers) and their associated mobile operating systems are a remaining “weak link” to ensure an “open internet”. In the era of the internet of Things (IoT) more and more devices are connected to the internet, and hence there exists