Skype: Dutch House says mobile carriers can't limit its use

AMSTERDAM – Dutch consumers may soon be able to use Skype and other Internet-based services on their smartphones for no more than their basic subscription costs under a new bill passed by Parliament Wednesday.

In a ruling "net neutrality" advocates say may set an example in Europe, mobile service providers will not be able to give preferential treatment to their own services, or block or charge extra for using cheaper alternatives to their own voice or text messaging services. The bill must still be passed by the senate, although that is usually a formality.

Telecommunications companies including Vodafone, T-Mobile and the former Dutch state telecom Royal KPN NV had lobbied against the bill, claiming it may result in higher subscription prices and make it impossible to offer quality guarantees for key services.

However, advocates argued it will ensure telecoms don't abuse their control over mobile networks to stifle competition and innovation. The Dutch bill was endorsed by consumer groups, "digital freedom" activists, and is seen as benefiting big software and content companies, notably Facebook, Skype owner Microsoft, and Google.

Although net neutrality has been debated by policy makers and the industry for a decade, the key provisions of the Dutch bill took shape in just two months as politicians reacted swiftly to a public outcry over telecom KPN's pricing policies.

"When it hits the wallet, it hits home," said Daphne van der Kroft of Bits of Freedom, an organization that opposes online restrictions.

In April, KPN announced poor first quarter earnings as customers using smart phones flocked to a messaging service called "WhatsApp." WhatsApp enables phone users with a mobile Internet subscription to send messages for no additional charge, sidestepping KPN's lucrative SMS business. In response, KPN chief executive Eelco Blok announced plans to charge customers extra for using Skype and WhatsApp.

The move backfired spectacularly.

Customers were outraged, and many began questioning for the first time how the company even knew which applications they were using on their phones.

Internet providers routinely monitor traffic on their network for a range of reasons, including removing bottlenecks, protecting customers from viruses and spam, and adhering to law enforcement demands.

But to track which customers are using WhatsApp or Skype, KPN would need to look relatively carefully at the data being transferred, using a practice known as "deep packet inspection."

KPN argued that's common in the industry and it doesn't eavesdrop on customers.

But the Netherlands' consumer rights watchdog demanded an investigation into possible privacy violations, and politicians, reading public sentiment, moved to stop the plan. One of the bill's co-authors, Labor MP Martijn van Dam, compared KPN to "a postal worker who delivers a letter, looks to see what's in it, and then claims he hasn't read it."

In a statement, KPN said it "regrets that parliament didn't take more time for this legislation," adding it is now considering other options to recoup lost revenues.

Vodafone said the bill would "lead to a large increase in prices for mobile Internet for a large group of consumers" by blocking the company from offering varying prices for varying services.

The Dutch bill comes at a crucial time, as most European countries are debating how to enact EU Commission rules on net neutrality.

The EU has ordered its members to enact less stringent laws by May 2011 requiring providers to be transparent about their policies, but most have yet to do so.

The EU position is that it makes sense to give telecoms leeway to "shape" network traffic, for instance by giving preference to people who want quality guarantees on streaming video — at a higher price. The EU guidelines allow telecoms to charge extra for some services, give preference to their own services, or even block rivals entirely, as long as they are open about what they are doing and consumers can easily switch providers.

This is close to current U.S. practice, which is also under debate.

T-Mobile has so far blocked Skype in Germany. In Britain, Vodafone charges extra for the service. Other practices, such as quietly degrading the quality of some applications, are suspected but difficult to prove.

In April, the EU's commissioner for the digital agenda Neelie Kroes lashed out at telecoms' lack of transparency and ordered an investigation.

"Mark my words," Kroes said. "If measures to enhance competition are not enough to bring Internet providers to offer real consumer choice, I'm ready to prohibit the blocking of lawful services or applications."

However, she has said the Dutch legislation is "premature."

The telecommunications industry has warned that strict net neutrality laws may lead to a situation where content from Facebook, Netflix, Google and others clog bandwidth and telecoms are unable to fund expansion. Some say the content companies should be forced to pay for bandwidth or share their revenues with the telecoms.

"Internet search engines use our network without paying anything at all, which is good for them but bad for us." Spain's Telefonica CEO Cesar Alierta complained at a conference last year. "It's obvious that this situation must change."