Zero Rating a Tough Issue for FCC

FCC officials said earlier this month that the order, as proposed by Chairman Tom Wheeler, won't prohibit zero-rating, per se, though such practices could be blocked if they're found to be anticompetitive or unreasonably harm consumers under the agency’s new general conduct standard (see 1502040055). One often-cited example of zero rating is Sprint’s launch last summer of a prepaid data plan for Virgin Mobile customers giving them unlimited access to Facebook or other social media sites for $12 per month. T-Mobile said it will let subscribers stream music on iHeartRadio, iTunes Radio, Pandora, Rhapsody and a growing number of apps without that counting against the monthly data cap, in what T-Mobile bills as “music freedom.”

Hal Singer of the Progressive Policy Institute said zero rating will likely be subject to case-by-case FCC review, with the presumption against the practice. No one loves the idea of limited Internet access at lower rates, but the alternative could be no service at all, he said. “Consider a consumer whose willingness to pay for mobile broadband is $30 per month, but the cheaper all-you-can-eat plan is $45 per month,” Singer said. “He is excluded from the market. A sponsored data plan, underwritten in part by a large content provider, could bring that consumer into the market.” Singer cited a November study from the FCC that found that the Internet is $10-15 per month too expensive for some Americans. “It is crazy to deny them a subsidy from large content providers just because the ‘next Google’ couldn’t afford the subsidy,” he said.

“When you start to inhibit experimentation in the marketplace, inevitably who gets hurt most are consumers who are less well off,” said former Commissioner Robert McDowell, now at Wiley Rein. “There are a lot of possibilities that could be brought to market that would help low-income consumers that now may be snuffed out, especially if this rumor is true that the FCC is establishing a ‘mother may I’ panel for industry to submit its business plans before rolling them out.”

Free Press Policy Director Matt Wood takes a more skeptical view of the practice: “When carriers are offering a break from the caps the carriers themselves impose, and touting that as a benefit, we always have to ask what's the justification for the cap in the first place? If people are allowed to stream all they want from a certain site but not others, it's certainly not a congestion rationale.” Viewing zero rating as a good deal for consumers is like “thanking the used car salesman" for knocking a few thousand dollars off the price, he said. The question is why was the price so high, or the cap so low, to start with, he said.

Todd O'Boyle, program director at Common Cause's Media and Democracy Reform Initiative, agreed. Zero rating offers a “superficial veneer of consumer benefit, but unquestionably threatens the public interest,” he said. “It privileges monied incumbents over upstarts, hindering innovation.” The FCC has other tools it can employ, like promoting affordable universal and open Internet connectivity, before sanctioning zero rating, O’Boyle said.

Free State Foundation President Randolph May said commissioners are right to worry about the potential effects for the poor. "Low-income persons are the ones most likely to be hurt when the FCC goes after zero-rated plans because they are, by definition, most attractive to persons who are least able to pay more,” he said. “Zealous” advocates of net neutrality don’t seem to care, he said. “They are determined to enforce a rigid form of neutrality that prohibits any form of differentiation in business models, no matter the effect on low-income subscribers, or any others for that matter."

Doug Brake, telecom policy analyst at the Information Technology & Innovation Foundation, said zero rating is a mixed bag, and the FCC should err on the side of permitting the practice. “In a wired context, as long as the cap is reasonably designed to reign in the long tail of bandwidth use and overage fees are reasonable, there is little reason to think zero-rated services would have a significant impact on the ability of new services to succeed on the open Internet,” he said. “In the wireless context, where capacity is far more constrained, we should expect lower data caps but the same general idea applies.” But any service that allows a subscriber to access only a handful of apps would be problematic, he said.