Wireless data caps, the annoying limits on how much data you can use from your phone, have been a fact of mobile life for several years. Now, a new pricing concept in the wireless marketplace, known as “zero-rating,” promises to relieve consumers of the fear that streaming one too many videos will trigger extra charges.
But instead of receiving plaudits, zero-rating has come under attack by many in Washington as a violation of the network-neutrality rules adopted by the Federal Communications Commission (FCC) last year. The controversy underscores the danger that the FCC’s rules—which are now under review in federal court—poses for consumers and the growth of the Internet.
The latest dispute involves T-Mobile, the no. 3 wireless carrier in the U.S. Since 2014, T-Mobile has offered a “Music Freedom” program under which consumers can stream content from music sites such as Pandora and Spotify without it counting against their limit.
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Last November, the firm launched a similar program for video, which they call “Binge On.” The plan allows subscribers to access video content from sites such as ESPN, Hulu, and Netflix without it counting against their caps. There are no fees to pay, and all video providers are able to join. To do so, however, they need to conform to certain technical standards, limiting the bandwidth used by the video. Essentially, this means limiting the video to standard quality rather than high definition.
The idea of zero-rating is not unique to T-Mobile. Wireless market leaders Verizon and AT&T are launching zero-rating plans of their own under which content providers can also exempt data from counting against a subscriber’s data cap, albeit for a fee. Also known as “sponsored data,” the plans would work much like an 800 phone number, with charges paid by a business rather than the customer.
The plans have pro-regulation zealots up in arms. It’s discriminatory, they say, and violates the FCC’s brand new “neutrality” regime. Allowing a network operator to charge different prices to consumers based on the kind of data and provider of data, they say, gives that network operator too much power. This, in turn, could make it difficult for upstart providers to get a foothold in the market.
This reasoning is flawed. If anything, zero-rating is likely to increase competition and innovation, not constrain it. Under the Binge On program, any provider can participate, with no fee required. But even fee-based “sponsored data” plans such as AT&T’s raise no special concerns. A small content provider is no more disadvantaged by paying a fee to add zero-rating service than by having to pay for an 800 number, advertising, rent, or any other expense. In fact, by having the ability to reduce potential costs of using their content, zero-rating would be an important tool for newcomers in the marketplace.
Plans such as Binge On could help supercharge competition among wireless networks as well. T-Mobile is now a distant third in the wireless marketplace, with 15 percent of subscribers, far behind leaders AT&T and Verizon. It needs to offer a better mousetrap to consumers, and Binge On is one big part of its plan to do that. Efforts to block such innovative approaches that expand the network will hobble competition and consumer choice, not increase it.
It’s not clear how the battle over zero-rating plans will turn out. The FCC deliberately punted on the issue when it wrote its neutrality rules last year, leaving its position rather muddy. While the chairman, Tom Wheeler, has praised Binge On as “pro-consumer,” the commission is still looking into the matter. An outright rejection of such zero-rating plans would be bad news for wireless consumers.
Equally disturbing is the subjective, extemporaneous nature of the FCC’s decision-making process, forcing firms to go to the FCC for permission before adopting any new practice. In a dynamic marketplace, outside-the-box innovation should be the rule, not the exception. The question is whether the FCC can pass judgment on each such innovation without stifling dynamism. At this point, prospects are not good.