Reforming net-neutrality rules could help the UK telecom market unlock new innovation and drive 5G investments, according to a new report by Stephen Howard of Communications Chambers, published in partnership with Virgin Media O2.
Net-neutrality rules, which require telecom providers to treat all traffic equally, were designed to protect consumers by limiting operators’ ability to prioritise higher-margin data. But the rules “severely hamper even customers themselves from specifying which traffic they would like to see accorded the most importance” Howard wrote in his “Net Fatality” report.
According to research from the consultant, incremental revenues from reform could lie between £174m and £871m per annum, while network efficiency could add a further £384 million. All of this could be reinvested in improving mobile networks, Howard argues, although the wide range suggests this figure is highly speculative.
Essentially, he argues that while operators are building smart network capabilities – such as spectrum prioritisation has been pushed by the likes of Ericsson – they cannot fully exploit them due to outdated net neutrality rules. While telcos can justify prioritisation, under current rules each exception must be assessed and justified independently.
Howard lists several examples where relaxing the net-neutrality rules could be beneficial, including prioritising navigation apps in vehicles over less bandwidth intensive use cases. Prioritising payments processing at busy events is another example he shares.
As demand for AI services increases, prioritising network bandwidth becomes more relevant. For example, an enterprise may want to prioritise live conversations with AI agents over cloud-based AI services.
Howard uses Ofcom figures to support claims that users would be open to paying for prioritised or differentiated services, citing the fact that customers already pay a premium for larger or unlimited data plans.
He also cites a market where this is already happening: Singtel launched network slicing in 2024 and offers differentiated connectivity through User Equipment Route Selection Policy (URSP), which routes data associated with specific apps across a specified slice, depending on its service requirements. While Singtel hasn’t shared specific financial figures, it did discuss how consumers had benefitted from network slicing at Ericsson’s recent Core Network Summit in Rome.
Howard said: “If we want a mobile sector pushing the boundaries with the latest technologies and services like 5G and agentic AI, then we need modern regulation that’s fit for purpose, with rules that preserve the open internet, but which give operators the freedom to get creative and experiment.”
Stunting innovation
The study was carried out independently, according to Howard, but it was commissioned by VMO2, which backs the findings, and has called on the UK government to reassess net-neutrality rules, claiming they are “stunting innovation”.
Reforming the rules would unlock a new wave of innovation by encouraging operators and startups to develop services that give customers greater control and address common connectivity pain-points, the UK telco argues.
Lutz Schüler, CEO of Virgin Media O2, said “Outdated net-neutrality rules limit innovation and hold back the full benefits of the infrastructure we’re building. We’re not able to help customers by prioritising taxi and map apps when travelling home at night and can’t prioritise payment apps for sole traders in crowded markets. No one is winning.
“New technologies like agentic AI will improve the online experience and we’re investing £700m this year in our mobile network to boost connectivity across the UK. But with network traffic growing relentlessly, we won’t get the most out of it without much-needed reform.
“To unleash private sector investment, improve consumer and business services, and deliver the UK’s 5G ambition, the government should use its Mobile Market Review to remove these antiquated roadblocks to innovation so we can bring about better connectivity and services for all.”
The debate comes as regulators and policymakers across Europe continue to examine whether existing open internet rules remain appropriate as 5G standalone networks, network slicing and AI-driven services become more widespread. In the UK, the government is currently conducting its Mobile Market Review, which it launched in February.
However, VMO2’s position has drawn some criticism. Independent price comparison site Broadband Genie warned that scrapping net-neutrality rules could result in a “two-tier internet” and have a negative impact on consumers.
Broadband Genie Strategist Alex Tofts said: “Virgin Media O2 stands to gain the most, so it’s unsurprising that one of the UK's largest broadband and mobile networks wants to scrap net neutrality.
“If regulations are relaxed, we risk creating a two-tier internet where service providers act as gatekeepers. Tech giants will be able to pay for fast lanes, leaving smaller businesses and everyday consumers stuck in the slow lane. It shouldn’t be up to internet service providers to dictate which traffic gets prioritised based on commercial deals.”
Tough quarter for VMO2
The push from VMO2 comes as the telco, formed from the merger of O2 UK and Virgin Media, published its latest quarterly financial results. The operator revealed its fibre footprint now reaches more than 9 million premises across the UK, but overall Q2 revenue fell 7.9% (down 3.8% when adjusted for the Daisy transaction) to £2.042bn. EBITDA also fell to £975m (down 2.9% year on year when adjusted).
Its customer base declined across both fixed broadband, with a net loss of 29,900, and mobile broadband, which saw a net reduction of 29,200. However, the operator was keen to point out that this time last year it had lost 53,000 fixed customers, indicating its customer losses have slowed.
Overall, its full year guidance remains unchanged – it still expects a total service revenue decline of 3% to 5% year on year, and an adjusted EBITDA decline of 3% to 5% (both adjusted for the aforementioned Daisy transaction).
Schüler said: “Our performance in Q2 is in line with our full year guidance. It reflects the continued navigation of a highly competitive market backdrop, a focus on execution and transformation in our three operating areas – consumer, B2B and wholesale – and a relentless commitment to improving customer experience and building strong foundations for future growth.
