Thursday, March 23, 2017

Free Market Orientation Spurs Unlimited Data Plans

Unlimited data plans are back with all four major mobile providers in the United States. In my view, it is no coincidence that announcements regarding such unlimited plans were made shortly after FCC Chairman Ajit Pai indicated his disposition for relying on free market-oriented communications policy approaches.
On February 3, 2017, Chairman Pai announced that the FCC would close its investigation into mobile providers’ free data offerings. On February 12, 2017, Verizon announced that it was launching a number of unlimited data plans. A day later, T-Mobile updated its existing unlimited plan to include high-definition video streaming. A day after T-Mobile’s announcement, Sprint announced very similar updates to its existing unlimited plan. And then two days after Sprint’s updates, AT&T expanded the reach of its unlimited data plan to all consumers, which was previously available to only U-Verse and DirecTV subscribers.
During his keynote speech at the Mobile World Congress on February 28, 2017, Chairman Pai summed up the mobile market’s response to his decision to end the FCC’s investigation:
Earlier this month, for example, we ended the FCC’s investigation into so-called “zero-rating,” or free data offerings. Free data plans have proven to be popular among consumers, particularly those with low incomes, because they allow consumers to enjoy content without data limits or charges. They have also enhanced competition. Nonetheless, the FCC had put these plans under the regulatory microscope. It claimed that they were anti-competitive, would lead to the end of unlimited data plans, or otherwise limit online access. But the truth is that consumers like getting something for free, and they want their providers to compete by introducing innovative offerings. Our recent decision simply respected consumers’ preference.
The best evidence of the wisdom of our new approach is what happened afterward. In the days following our decision, all four national wireless providers in the United States announced new unlimited data plans or expanded their existing ones. Consumers are now benefiting from these offers—offers made possible by a competitive marketplace. And remember: Preemptive government regulation did not produce that result. The free market did.
Some critics of Chairman Pai’s policies say that the recent announcements regarding unlimited data plans are not related to the FCC’s decision to end the investigation of free data programs. Instead, they claim that competition is responsible for the emergence of these plans. But I think it is both.
In this instance, the emergence of free data programs and unlimited data plans are direct results of dynamic competition and permissionless innovation. Unlimited data plans are only profitable when mobile providers are able to effectively manage their networks and efficiently deliver data to consumers. The reestablishment of unlimited data plans over the last month is an indication that mobile providers recognize that the FCC, under Chairman Pai’s leadership, will not be monitoring and second-guessing every decision they make experimenting with new business models as they seek to be responsive to consumer demands.
The use of unlimited data plans will increase significantly the amount of data consumers use. And while mobile providers are updating their networks constantly to improve the speeds and quality of connections, the emergence of these plans does not improve automatically the capacity of mobile networks. So as long as there is a shortage between the amount of data consumers demand and the amount of spectrum allocated for private use, mobile providers will need to engage in network management techniques in order to allocate data efficiently to all consumers. (See this February 2017 blog regarding the projected growth in consumer demand and mobile data traffic.)
Unfortunately, network management practices could violate the Network Neutrality rules established in the Open Internet Order. Before the adoption of the Open Internet Order and soon thereafter when the Order was under appeal, the uncertainty of its imposition discouraged broadband providers from making major network investments. Chairman Pai opposed the adoption of the Open Internet Order while he was Commissioner in February 2015 and recently reiterated that the Order had a direct negative impact on broadband capital investment. Preemptive regulations often have unintended consequences that increase the costs of performing day-to-day business practices, like network management. While the Open Internet Order includes an allowance of “reasonable network management,” if the FCC construes the scope of its review for reasonableness too broadly, and divorces from marketplace realities, then innovative business models like unlimited data plans will be chilled.
But despite that the Open Internet Order is still in effect, Chairman Pai’s statements and actions have created more certainty among broadband providers that the new Commission will not burden ISPs unnecessarily with more costly regulations. As a result, providers are willing to bear the costs of network management that come with offering unlimited data plans because they are less concerned about being hit with enforcement actions for performing such day-to-day business practices.
Free data offerings and unlimited data plans give consumers multiple cost-effective options for accessing more mobile data and online content. But these innovative offerings would not have emerged if not for permissionless innovation and dynamic competition in the mobile broadband market. Of course, the Open Internet Order still needs to be curtailed substantially to avoid further uncertainty and to lessen the regulatory costs that may discourage providers from creating new and innovative services. Also, regulatory barriers at the state and local levels should be reduced or eliminated to encourage additional broadband investment.
All that said, in my view, it is no coincidence that mobile broadband providers now are willing to offer consumers unlimited data plans as Chairman Pai leads the new FCC toward a free market-oriented approach to communications policy.