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FCC Could end up "Protecting" Consumers from Cheaper Internet Access

Net neutrality proponents have seen their lines splinter over the issue of “zero rating,” the practice of not counting data used to access certain sites and content against a user’s data cap. While consumers have flocked to carriers, such as T-Mobile, which offer such services, many net neutrality fundamentalists point out that zero rating is a violation of the principle that all data be treated the same all the time. This mantra has been successful in getting zero-rated applications, such as Facebook’s Free Basics, outlawed in some countries (like Chile and India).

In the United States, the FCC has not (yet) banned zero rating practices, and their status under the 2015 Open Internet Order remains ambiguous. Most major carriers now offer zero rating of some content, and, for now, the Commission is not taking any formal action to stop them. The FCC has, however, signaled some degree of discontent, summoning carriers to explain their programs. The implication is clear: the FCC has its eye on anyone trying to give consumers free data.

So although no official rules will be forthcoming at least until the legal battle over the Open Internet Order is resolved, the FCC is still exerting its influence in creating a sort of “mother may I” approach to zero rating programs. This sort of regulating without regulating can have a chilling effect on innovation and competition. Big players like Verizon, AT&T, T-Mobile, and Sprint may be able to navigate the gauntlet and cultivate the tacit approval of regulators. But new entrants to the market or those with fresh innovations will face an uphill battle against a regulator for whom every new idea faces a priori scrutiny. Consumers would benefit more from a regime of “permissionless innovation,” in which concrete benefits are not sacrificed for fear of hypothetical harms.

Zero rating is a prime example of this. The concrete benefits to consumers are illustrated by consumers’ own actions. Zero-rated plans and the carriers which offer them have seen an uptick in demand, and users are consuming more content. Groups that oppose zero rating on “consumer protection” grounds, therefore, seem to be disconnected from the interests of those whom they purport to protect. A recent Information Technology and Innovation Foundation report confirms that consumers really might know what is best for them. It finds that, existing pricing models that include zero rating have positive effects on innovation, competition, and consumer welfare.

The alleged harms associated with zero-rating are, at best, hypothetical. Most complaints boil down to claiming that such plans create a “walled garden” in which carriers can direct traffic to certain edge providers within the zero rated environment at the expense of smaller start-ups who are left outside. This will supposedly shelter entrenched providers from competition and keep new innovators out of the market because consumers won’t be able to access their content for free. But this fear is contradicted by the facts on the ground. Facebook’s Free Basics, for example, will add any platform which meets basic technical requirements to its app, and there is no charge for being included. The same is true for T-Mobile’s Binge-On and Music Freedom which zero rate nearly 100 services. It is doubtful that most users—and, indeed, most critics of zero rating—could name even half of the services offered free by T-Mobile. If anything, smaller, lesser-known platforms are more competitive in such an environment since users will be more apt to check out an unfamiliar service if it is available at no additional cost. If, on the other hand, using any and all platforms incurs a hit to one’s data cap, then consumers are more likely to just stick with what they know.

A related criticism is that zero rating programs allow their purveyors to control how users consume the Internet: Facebook provides the pieces of the Internet that it chooses for you to have, not the whole Internet. While it’s true that programs like Free Basics do not offer the whole Internet free of charge, this is hardly a consumer harm. In the absence of zero rating, users would get nothing free but could buy access to the whole Internet. With zero rating, users can still buy access to the whole Internet, and they get some of it free. In no other marketplace would such a practice be seen as harmful. Here, again, facts on the ground belie the fears of critics. Data from Free Basics indicate that half of those who use the platform also buy access to the rest of the web within 30 days of getting online for the first time. If the goal of Free Basics is to keep users only at free sites, it has been dramatically unsuccessful.

Adherence to a fundamentalist vision of net neutrality would lead one to oppose zero rating. But such a position demonstrates ambivalence to the actual effects of such programs. The overall impact of zero rating services is a net benefit to consumers, and the United States should allow it to thrive rather than regulating or banning it.