Zero Rating Pro-Consumer, not a Sneak Attack on Net Neutrality, ITIF Says

Doug Brake, ITIF telecom policy analyst, told us he doesn’t expect much from the FCC until after the U.S. Court of Appeals for the D.C. Circuit releases its decision on the February 2015 net neutrality order. “It seems like everyone is in kind of a holding pattern, waiting and seeing exactly how things shake out,” Brake said. The ITIF wanted to “get out in front” of the court opinion, he said.

Some supporters of the order seem to view zero rating as “the next sneak attack” on net neutrality, Brake said. If the court upholds the FCC assertion of common-carrier rules over mobile broadband, net neutrality supporters “are positioning themselves to make this the next battleground,” he said. ITIF believes as long as platforms like T-Mobile’s Binge On service are open, the FCC shouldn't find fault. “We don’t want to see exclusive deals,” he said. Brake said from most of what he has seen, FCC staffers have mostly been gathering information and lines have yet to be drawn on what constitutes a permissible zero-rated offering.

“It is good economics to help advance innovation in information technology markets,” the ITIF report said. “Where both content or ‘edge’ firms as well as network operators make large investments in establishing platforms that have relatively low marginal costs, and gain value with each additional user, zero rating can help bring new customers into a firm’s customer base, enhancing the value of the product, and providing additional revenues to defray the investment for additional innovation.”

Zero rating also contributes to adoption, especially in developing nations, ITIF said. The report said mobile broadband networks covered about 78 percent of the world’s population in 2015, but only 43 percent were online. Zero rating is also generally pro-competitive, ITIF said. “There is little difference between zero rating and common-place discounts that sellers provide through middlemen that everyone accepts as normal, like toll-free 800 numbers.” Zero rated plans also are generally popular, ITIF said: “We should celebrate when competitive markets work to provide consumers more of what they want.”

Brake told us the key conclusion of the paper is that innovators should be allowed to “take over and do their thing” as long as programs are open. “In general, telecom regulators around the world should formally recognize the pro-competitive, pro-consumer benefits of such practices and announce that zero-rating programs are in the public interest, as long as they are nonexclusive,” the paper said. “This would send a strong signal to innovators, both at the network and edge level, that this kind of innovation will not be obstructed by governments.”

The ITIF analysis doesn’t add much to the discussion, Public Knowledge Senior Vice President Harold Feld said. “Given that the FCC has received copious complaints about data caps and zero rating, the claim that consumer[s] are generally happy is rather suspect,” Feld emailed. “If you are going to assert that today's zero rating is comparable to ye olde tariffed 800 number, or ye olde collect call, then it would be useful to explain the comparison besides the surface comparison that ‘well, someone else pays, so totally o.k.’ Likewise, ITIF's simple recitation of the potential benefits of data caps and zero rating does little but restate what the Commission found a year ago in the Open Internet Order, absent the countervailing recitation of potential harms. It's hard to see how this contributes to overall debate as it has evolved in the last year or two.”

The FCC doesn’t need to relitigate its decision last year to redefine broadband as a Communications Act Title II service, said Michael Calabrese, director of the Wireless Future program at New America. "The open Internet rules are designed to head off exactly what ITIF espouses, which is a cable company or other broadband ISP leveraging their control over the pipe to either tollgate or gain a competitive advantage with respect to edge providers of online content and services,” Calabrese said. “It would be as if an electric utility sold refrigerators and offered free electricity to gain an advantage over GE or Samsung. The whole point of Title II common carrier regulation is that ISPs must not favor their own content with zero rating, or discriminate among bits from edge providers except as necessary for reasonable network management."

Evan Swarztrauber, communications director at TechFreedom, said the group agrees with the thrust of ITIF’s report. “Without any evidence of real consumer harm, the FCC should not be second-guessing business models in the highly competitive wireless market where carriers are tripping over themselves to poach customers,” he said. “T-Mobile, Verizon, and AT&T are all trying to help their customers ration their monthly data allowances in different ways. If the FCC treats T-Mobile's Binge On (see 1605230048) with a light touch but Verizon's FreeBee Data with a hammer, the agency will effectively be picking winners and losers in the marketplace.”

FCC failure to provide clarity on zero rating “has already led major players like AT&T to halt new, potentially innovative sponsored data offerings until the FCC makes a move,” Swarztrauber said. “If uncertainty is enough for a giant like AT&T to wait on the sidelines, just imagine how smaller players are affected by the FCC's oscillating tone on free data offerings. The FCC may well botch this issue and end up robbing American consumers of popular offerings like Binge On.”

"Zero-rating is pro-consumer, especially pro-low income consumer,” said Randolph May, president of the Free State Foundation. “This is true here in the U.S. and abroad. Programs like Facebook's Free Basics are Internet gateways for many in less developed countries. The FCC just needs to step back and observe the market developments -- something that's hard for it to do but the right course."