Zero Rating Threatens the Open Internet

Dec 1, 2016 | Policy

At Data Foundry, we’re long-time advocates for open markets and the open Internet. Over the years we have worked on several efforts to protect the open Internet with rules such as those put forth in the FCC’s Open Internet Order.

Free or open market systems usually flourish with minimal regulation. However, this isn’t always the case, and it hasn’t been the case with Internet service providers. There is a lack of competition in the U.S. broadband market due to large companies dominating it by doing whatever it takes to eliminate competition and maintain their dominion. Recently, another major threat to the open Internet has been on our minds – AT&T’s historic mergers and the practice of zero-rating. So, what exactly is zero rating?

What Is Zero Rating?

Zero rating is the practice of not charging network customers for the data they use to consume content from certain content providers or to access certain applications. This sounds good to consumers at first, but it’s bad in the long run.

Why is free content bad? Well, it discourages competition in the marketplace. By allowing customers to use certain apps or platforms for free, they are being pushed to use the provider’s own content platforms, apps and services and their partners’ services rather than allowing the best apps and services to win out.

You may have heard the expression “There’s no such thing as a free lunch.” This applies to zero rating as well. Ultimately, the consumer and/or edge providers end up paying for these supposed free services. In some cases, consumer data is used as the currency to provide zero-rated services. In this scenario, the network provider or application tracks consumer activities and data as they use the free app or service and report this information back to the company.

Who Offers Zero-Rated Services?

Perhaps the biggest and most blatant threat zero-rating poses to the open Internet so far is AT&T’s offering of unlimited streaming through their DirecTV Now app. AT&T now owns DirecTV, and they are giving their own company preference on their network. AT&T isn’t the only provider pushing zero-rated services. T-Mobile, Verizon and Comcast also offer them through services such as Music Freedom, BingeOn, Stream TV and Verizon’s NFL mobile app.

Stifling Competition & Consumer Choice

The use of zero rating is especially troubling as AT&T continues to push a merger through with Time Warner Cable. AT&T will own one of the country’s largest networks, largest cable companies and largest satellite TV companies, virtually wiping out competition in the market.

Allowing network providers to offer zero-rated services by charging edge providers makes it difficult, if not impossible, for new and lesser-known products and services to compete in this environment. For example, to level the playing field, Hulu would have to pay AT&T to make its traffic exempt from data caps while DirecTV would not.

The practice of zero-rating goes against the core principle of an open Internet. As aptly stated in an article by T.C. Sottek from The Verge, “[the consumer] should be deciding who wins and loses in the market for information.” Instead, we are letting broadband and mobile network providers decide for us.

It appears major ISPs are striving to be like cable companies with their service offerings. They would prefer everything consumers do online be sold in bundles. This way, major ISPs not only make money off consumers, but they also make money off the content producers and application developers that want a place in the market.

While customers may ostensibly have a greater freedom of choice when they are offered “free” access to certain services, in reality, their choices are being eliminated in some cases before they even know they exist. Once competition is eliminated, so are the great deals that drove you to those providers in the first place. Consumers will end up paying for these services in other ways as well, whether it’s through distribution of their data, bundling or price hikes. Whatever the method, the result is always the same, monopolies set the (usually high) price for consumers in the absence of competition. After all, what choice will you have then?