The Multicultural Media, Telecom and Internet Council (MMTC) published a May 2016 white paper entitled “Understanding and Appreciating Zero-Rating: The Use and Impact of Free Data in the Mobile Broadband Sector.” The paper discusses how zero-rated services positively impact consumers, particularly minority and low-income individuals. The consumer benefits of zero-rated services deserve close attention. Regrettably for consumers, the FCC’s reclassification of broadband as a Title II service in its February 2015 Open Internet Order has created concerns that zero-rated services could be regulated out of existence.
Zero-rated services are also known as “free data” services. These pro-consumer services are mobile broadband offerings which allow consumers to access curated online content with an exemption from monthly data caps. Typically, that means consumers can access unlimited curated online content at no additional cost. MMTC’s paper explores five positive impacts of zero-rated services on the Internet ecosystem: lessening the digital divide, increasing the ability of smartphone-only consumers, driving innovative mobile broadband business models, spurring innovation within the entire mobile ecosystem, and empowering consumers.
The digital divide is characterized as the gap between individuals who are online and those who are not. For non-adopters who have little interest in a broadband connection, zero-rated programs can help bridge the gap by offering unlimited video or music content, for example. For non-adopters who believe mobile broadband is too expensive, free data services allow for more Internet usage at a lower cost than a traditional mobile broadband subscription.
As the white paper states:
Free data helps to address these barriers by enhancing the value proposition for non-adopters. The ability to stream as much video and music content as possible – activities that are among the most popular wireless uses across every user group – could become an enticing on-ramp for non-users: if they come to wireless broadband for unlimited Netflix streaming, they may very well stay online and use their connections for additional, more meaningful uses. For those who perceive broadband of any kind – wired or wireless – to be too expensive, the promise of free data could allow them to purchase more basic plans with lower data caps, which would deliver significant monthly cost-savings.
There is a national trend among consumers of all income levels of substituting mobile broadband for fixed broadband. This trend is especially pronounced among minority and low-income consumers. Free data services allow smartphone-only consumers to accomplish more on the Internet without exceeding their monthly data caps. Because streaming video does not count towards data caps under zero-rated services like T-Mobile’s “Binge On,” smartphone-only consumers can allocate data for other uses, such as finding directions, reading a news article, or taking a political survey.
Zero-rated programs are innovative business models designed to benefit the individual consumer. A recent CTIA survey says that 65 percent of American adults are likely to sign-up with a new wireless provider offering free data, so providers are using these services to compete with each other. The MMTC white paper says that consumers find the personalization of zero-rated programs attractive:
These programs have been voluntary from the start – depending on the service provider, subscribers are free to either opt in or opt out at any time. This builds on the modularity inherent in the modern wireless sector, where users have significant freedom to customize their user experience by, for example, picking and choosing which apps to install, which handset to purchase, which network to use, and which service option best matches their data needs.
As the number of mobile devices and connections increases and as mobile networks upgrade to 5G over the next several years, innovation in zero-rated services could lay the groundwork for other personal data consumption. Although zero-rated services are used primarily for entertainment purposes, these offerings likely will expand into new (and arguably more important) spaces within the mobile ecosystem. Health, energy, and dietary monitoring are becoming popular tools among mobile broadband consumers. MMTC says that zero-rated programs could offer critical, time-sensitive, and life-enhancing services:
For example, zero-rating certain health-related mobile tools could prove enormously beneficial for African Americans, who, as a group, are more likely to develop chronic diseases such as diabetes and heart disease. Left unaddressed, these kinds of ailments incur significant healthcare costs. But when treated in a preventative and real-time manner, there is evidence to suggest that health outcomes in these communities improve while also helping to realize cost-savings for patients and healthcare providers alike. These benefits inure not just to communities of color but to everyone.
Zero-rated services provide enhanced value and choice, especially to low-income consumers. Because providers are offering free data services in competition with each other and because those services allow consumers to opt in/opt out at any time, consumers have the freedom to choose which offerings benefit them the most. MMTC states that “this overall trend toward greater consumer empowerment, of which free data is the most recent example, benefits all consumers in many ways – but for communities of color and low-income households, these benefits are especially impactful given their above-average use of mobile broadband.”
The FCC has scrutinized zero-rated services because many critics say they violate network neutrality principles. However, in the Open Internet Order, zero-rated services do not expressly fall under the definition of a “broadband Internet access service,” and therefore are not subject to Title II regulations. (At least that is the way it was presented during the D.C. Circuit Oral Argument in December 2015, but we are still waiting on a decision.)
During a “Fireside Chat at Free State Foundation’s Eighth Annual Telecom Policy Conference, Commissioner Mignon Clyburn called it a “good thing” that zero-rated services were not discussed in the Open Internet Order. Commissioner Clyburn also acknowledged the pro-consumer aspects of zero-rated services. Commissioner Clyburn explained:
One of the reasons I was honestly very vocal inside of our house about not abandoning or not eliminating outright the other possibility for sponsored data or zero-rated plans was because when it comes to product differentiation and the like, it could be a good thing. It could be a worrisome thing too when it’s used in a way which we did not envision. And that's why we said we will look at these things on a case-by-case basis.
Commissioner Clyburn’s observations surely cut against simplistic claims of critics that zero-rated services categorically violate principles set out in the Open Internet Order. Even so, agency scrutiny of zero-rated services – whether based on a vague “general conduct” standard or some other unknown standard – results in a state of regulatory uncertainty. Innovative and pro-consumer service offerings are stymied when market providers cannot discern or predict what the agency's rules are and whether their new offering will be permitted.
MMTC Vice President and Chief Research and Policy Officer Nicol Turner-Lee stated during the Hot-Topic Communications Issues Panel at FSF’s conference that the FCC consistently fails to take into account minority groups and diversity within the communications industry. As this white paper clearly outlines, free data services are innovative business models that benefit diverse groups across the United States, particularly minority and low-income consumers. Any intervention from the FCC to regulate or prohibit such offerings would show little consideration for diversity within the communications space and would hinder upward mobility for low-income consumers.
FSF scholars have written frequently about the positive economic impacts of zero-rated services and the scrutiny they have received from the FCC and foreign government agencies. See the following selection below:
- Michael Horney, “Indian Regulators Ban Zero-Rated Services,” FSF Blog (February 8, 2016).
- Randolph J. May, “Internet Freedom That Isn’t: FCC Vows Not to Meddle with Innovation and Rates Ring Hollow,” Perspectives from FSF Scholars, Vol. 11, No. 6 (January 27, 2016).
- Randolph J. May Statement, “Verizon’s New FreeBee Plan,” FSF Blog (January 20, 2016).
- Daniel Lyons, “Usage-Based Pricing, Zero Rating, and the Future of Broadband Innovation,” Perspectives from FSF Scholars, Vol. 11, No. 1 (January 4, 2016).
- Randolph J. May, “Zero-Rating Is Not a Human Rights Violation,” FSF Blog (October 19, 2015).
- Michael Horney, “Zero-Rating Could Kick-Start Internet Connections for Low-Income Persons,” FSF Blog (March 5, 2015).
- Michael Horney, “Netflix’s new Deal with iiNet Violates Net Neutrality,” FSF Blog (March 3, 2015).
- Randolph J. May, “It’s the Consumer, Stupid! – Part III,” FSF Blog (January 13, 2015).