Will The FCC Zero-out Zero-ratings in Net Neutrality Decision?

As the debate over Network Neutrality nears its climax with the Federal Communications Commission’s scheduled vote on February 26, there has been increasing attention on one relatively small sub-issue, so-called “zero rating” of certain mobile wireless digital services. Zero rating is currently the subject of intense debate in Europe as well, and has long been controversial in the developing world.

To opponents, zero rating is a euphemism for a pernicious form of discrimination. (Some proponents of the practice use the rather Orwellian term “positive price discrimination.”) Under zero rating schemes, mobile users may access content from selected sources without their data usage being counted against their data cap. The most prominent US zero rating offering is T-Mobile’s “Music Freedom” plan, which allows certain of its customers to stream any of 26 music services (including, notably, Pandora and Spotify) outside of their data plans.

The general reaction of most people is “Who would be against that?” T-Mobile is aggressively competing for market share, and this undoubtedly attracts new customers and saves a lot of money for many of them. However, most advocates of Network Neutrality regard zero rating as a serious threat to an open Internet. In the words of Susan Crawford, a leading scholar and activist, “Zero-rating is pernicious; it’s dangerous; it’s malignant. Regulators around the world are watching how the US deals with zero-rating, and we should outlaw it. Immediately. Unless it’s stopped, it’s not going to go away.”

The reason zero rating draws such vociferous reactions is that it flies in the face of the underlying principles of Network Neutrality. It is a clear instance of discrimination in content based on the identity of the source. Data from, say, Pandora is treated differently, and favorably, compared to data from some other providers.

While zero rating is relatively new and not yet well established in this country, it is common and widely used elsewhere, particularly in the developing countries. Elsewhere, the policies vary. There is an active debate in Europe about whether zero rating is consistent with the European Union’s version of Network Neutrality . Just last week, the Canadian Radio-Television and Telecommunications Commission prohibited several zero rating plans. Facebook (“Facebook Zero”), Google (“Google Free Zone”) and, controversially, Wikipedia (“Wikipedia Zero”) each have zero rating deals with numerous carriers around the world.

The Wikimedia Foundation addressed Net Neutrality ambiguously in the Washington Post:

“We have a complicated relationship to it. We believe in net neutrality in America,” said Gayle Karen Young, chief culture and talent officer at the Wikimedia Foundation. But, Young added, offering Wikipedia Zero requires a different perspective elsewhere. “Partnering with telecom companies in the near term, it blurs the net neutrality line in those areas. It fulfills our overall mission, though, which is providing free knowledge.”

The Foundation’s policy has received a great deal of criticism from some activists, such as Access, which said that the foundation had “turned its back on the greatest driver of open access to information the world has ever known, the open internet.” Others are more supportive; in 2013, the Wikimedia Foundation received an “activism” award at the SXSW Conference.

If, as is likely, the FCC votes to adopt net neutrality rules under Title II of the Communications Act, zero rating would be subject to Section 202 of the Act, which provides that:

It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.

Zero rating arguably discriminates against some content providers and gives others a preference, which brings Section 202 into play. The key word in the statute is “unreasonable.” There are many kinds of discrimination which are “reasonable,” such as giving priority to emergency service providers. Thus, the fight over zero rating is ultimately a dispute over whether it is a reasonable practice.

Proponents of zero rating, including free market economists and some minority groups, argue that zero rating affords an important benefit to consumers, especially those in the lower income brackets. They say that zero rating not only gives these people access to more information but helps introduce them to the benefits of the Internet. One particularly interesting aspect of zero rating is that carriers can give users free access to government services and distance learning. (This is the case in Zimbabwe.)

Opponents of zero rating say that it restricts users to a corner of the Internet, and that it creates insuperable barriers for new entrants. The next music service will never get off the ground, they says, because Spotify and Pandora will have locked up the market with exclusive deals that keep out new competitors.

While it is reasonably certain that the FCC will vote to declare broadband services to be subject to Title II, it remains to be seen if zero rating will be prohibited.

By Andrew Jay Schwartzman.