The U.S. net neutrality debate resumes in a federal appeals court today with providers such as AT&T and Verizon fighting to overturn FCC rules implemented earlier this year. But the regulation of Internet providers isn’t a battle in the U.S. alone, and a new report from a U.K. consulting firm warns that regulation has its perils.

An AT&T executive recently said net neutrality is already hurting product development.

“Since the Open Internet Order came out we’ve had weekly calls with the business units and literally 15 lawyers who are all trying to figure out whether that stuff we’ve invested in… would be a violation of the order,” AT&T’s Bob Quinn said in an interview with news website Politico.

“We’ve had to shelve a bunch of stuff because we’ve got to wait and see.”

Proponents of Internet regulation, including the three (of five) FCC commissioners that mandated new rules earlier this year, insist an “open” Internet will create competition and innovation.

The report from Strand Consulting makes points pro and con in its review of net regulation efforts in “at least 50 countries.”

It reports that “a number of regulators have misgivings about interpreting net neutrality because of the legal risks. The Federal Communications Commission in the USA faces nine lawsuits for its imposition of rules. It is almost certain that the rules will not survive the first round of lawsuits intact, and may be overturned all together should they go to the Supreme Court. It’s an important point for many countries that attempt to benchmark themselves against US rules, as they may find that rules contravene countries’ telecom laws and constitutions.”

The legal debate today in D.C. is not likely to settle the matter.

Strand reports that there have been “unintended consequences” when rules are imposed.

“[O]ur analysis show the emerging unintended consequences in countries with net neutrality rules including increased regulation on other parts of the internet ecosystem, increased broadband prices, copyright enforcement, privacy regulation, and increased surveillance,” Strand says.

Report highlights

Here are key points of emphasis as published by Strand in promoting the fourth such net neutrality report it has compiled:

1. Countries differ significantly in how net neutrality rules are made and the kind of legal instrument used, whether telecom regulation, legislation or guidelines. The legal instrument can impact how rules are interpreted and how the rules impact the digital ecosystem in investment and innovation.

2. Countries that use hard rules (legislation and regulation) have a lower rate of “edge provider” innovation created in the given country. This contradicts what supporters of net neutrality have claimed in making the rules, that an open internet is needed to support innovation from so-called “edge providers.” In countries with hard rules, the rate of local or native innovation declines once rules are put in place, but American internet companies such as Google and Netflix take a greater share of so-called edge innovation, crowding out locally made innovation.

3. In contrast, countries with soft rules (or even no rules in some cases) have a higher rate of locally-developed content and applications. It is an important point for countries that wish to support their native industries that hard net neutrality rules may be ill-advised.

4. The report offers a detailed study of zero rating and investigates the 5 purported harms by detractors. It finds that the recent war against zero rating, a practice that is used by half of world’s mobile operators for almost a decade, is a campaign waged by select opponents to reduce, if not remove data, caps.

5. Countries that have implemented bans on zero rating have no record of consumer complaint about the practice. Bans come about because of a single complaint from a single advocacy organization.

6. In Slovenia, the ban on zero rating cut traffic to local content and applications in half. Consumers can no longer use a zero rated customer service app on their phone to top up their mobile balance. Consumers now must ring the operator’s call center, resulting in a five-fold increase in call center volume for operators and consumer frustration. Operators are suing the telecom regulator for what they see as a violation of the Slovenia’s net neutrality law.

7. In Chile, the head of the country’s net neutrality advocacy became the chief of the telecom regulatory. He pronounced zero rating illegal one month after taking office. There was no investigation, but only a single complaint from a net neutrality organization more than a year earlier.

8. In Netherlands, certain actors are engaged in various face-saving activities to hold up that country’s “fundamentalist” interpretation of net neutrality even though other EU nations prefer more nuanced versions of net neutrality which are informed by surveys by BEREC and investigations by competition authorities. Meanwhile the country that styles itself as a model for the Open Internet has become a Surveillance State where some 3 billion photographs annually (and growing) of automobile license plates are digitally collected, stored, and processed in a network created by police and tax authorities. When net neutrality advocates succeed to legitimize the government monitoring of traffic, that grant of power is leveraged for a number of unintended purposes.

9. The report details fines for alleged net neutrality violations including $100 million recently imposed retroactively on AT&T for an activity over 5 years ago, but long since ended.

10. The report discusses what is driving the trend for net neutrality rules, not a need based on rampant misbehavior by operators, but an increasingly sophisticated and effective form of transnational activism that can be marshaled to pressure governments into advocates’ preferred action. Such a case was demonstrated in India earlier this year when activists pressured regulators into capitulation during an official public consultation.

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