Opinion: ‘Zero Rating’ Is Next Battlefield in FCC’s Digital War on Consumers

Published June 1, 2015

The Federal Communications Commission’s (FCC) recent decision to claim full regulatory power over the way the Internet works was bad enough, but the next battle in the government’s war on consumer-friendly innovation is approaching fast.

After the commission decided to enforce net neutrality by treating internet service providers (ISP) as if they are utilities like a water company, the next battle is shaping up over “zero rating,” or “sponsored data plans.”

Users of T-Mobile’s cellular services already benefit from zero rating, even if they haven’t yet heard of the term. Service providers agree to subsidize certain services that consumers want, essentially paying for their customers’ use of services.

In the case of T-Mobile, the cell phone company “zeroes out” the cost of transmitting data from entertainment providers such as Google Play Music, Soundcloud, and Xbox Music. In other words, customers with sponsored data plans get more for their money, because data coming from sponsored entertainment sources is free to the end user, allowing consumers to consume more data from non-sponsored sources in addition to the data they use in accessing sponsored sources.

For example, if a customer’s cell phone company partnered with ESPN, that customer could stream all the live games and get all the sports news they wanted, without using any of their normal data allotment. Zero-rating some data gives consumers an incentive to venture out and surf the Internet more, because it lowers the overall cost to them.

In other countries, some cell phone providers have agreed to provide popular services such as Facebook or Wikipedia at no cost to consumers. In developing countries such as India, where only 19 percent of citizens have Internet access, free access to Wikipedia lowers the barrier to knowledge and can thus enable otherwise at-risk children to educate themselves.

Although predicting how FCC may rule on zero rating is an exercise in tea-leaf reading, Chairman Tom Wheeler’s 332 pages of net neutrality regulations include references to ongoing reviews of companies’ adherence to a general “standard for future conduct.” Should FCC decide a company is “unreasonably interfering with or unreasonably disadvantaging” consumers’ access to the Internet, FCC could prescribe market interference on a case-by-case basis.

In February, Commissioner Ajit Pai warned zero rating may be in FCC’s crosshairs now that the commission has laid the framework for suppressing Internet innovation.

“Moreover, the President’s plan goes out of its way to say that sponsored-data plans and zero-rating programs, like T-Mobile’s Music Freedom offering, may violate the new standard for Internet conduct,” Pai wrote on February 10. “Preventing companies from differentiating themselves from the competition by giving consumers a wide variety of options will mean less choice and less free data for consumers.”

Although Pai’s prediction has not come to pass yet, FCC’s current “case-by-case” treatment of sponsored plans puts additional regulatory uncertainty on the telecom industry, one of the few industries showing growth in today’s struggling economy.

Forcing companies to ask government bureaucrats for permission before experimenting with new business models or consumer programs makes innovation a risky proposal, discouraging experimentation by “protecting” consumers from the things they want. It’s another unnecessary and harmful FCC power grab.

[Originally published at Inside Sources]