When the court struck down the FCC’s net neutrality rules, many consumer advocates argued that the result would be less online innovation. But a glance at international markets suggests that the Commission’s one-size-fits-all approach to broadband service may actually have left American consumers with fewer choices and denied them the potential benefits of more innovative broadband pricing models. This theme is the focus of my most recent working paper (0), entitled Innovations in Mobile Broadband Pricing, which the Mercatus Center is releasing today.
The goal of net neutrality has always been to limit interference by broadband service providers in markets for Internet-based content and applications. But in their efforts to do so, the Commission significantly reduced the amount of innovation possible in the broadband service market. Within limits, broadband providers were permitted to offer different plans that vary in the quantity of service available to customers, as well as the quality of that service. But they generally could not vary the service itself: with limited exceptions, broadband providers were generally required to offer customers access to all lawful Internet traffic, or none at all.
This all-or-nothing homogenization of the broadband product placed America increasingly at odds with the rest of the world. This is especially true with regard to mobile broadband. In various parts of the world, customers are offered a variety of alternatives to the unlimited Internet model, many of which are explored at length in the paper. These include:
Social Media Plans: In 2010, Turkey’s Turkcell began offering a plan that included voice, text, and Facebook access for a single price. This promotion helped bring mobile data to customers who wanted to use their mobile phones to participate in social media, but did not want to pay the higher rate for unlimited Internet access. Turkcell also used the promotion to encourage tech-phobic customers to get more comfortable with mobile browsing, after which Turkcell hoped to migrate some of them to more advanced data packages. In the first year of the promotion, Turkcell saw an 820 percent increase in mobile Facebook use. In early 2013, Facebook announced that it had struck similar deals with 18 wireless-service providers in 14 countries. Turkcell and other providers have offered similar promotions with Twitter, What’sApp, and other popular apps.
Facebook and Google “Free Zones”: To encourage greater brand penetration into new markets, Facebook and Google have developed stripped-down versions of their sites in partnership with wireless companies in developing countries, particularly those where prepaid, underpowered feature phones are more common. Net neutrality proponents decry these initiatives as watered-down, “walled garden” experiences that are pale imitations of true Internet access. But among users in the developing world, for whom some connectivity is better than none, the services have proven to be very popular.
TELUS VoIP partnership: TELUS, Canada’s third-largest wireless provider, has signed a strategic partnership with Microsoft to promote Skype on many smartphones on its network. The app runs on both Wi-Fi and the wireless network, and although use on the latter incurs data charges, TELUS customers receive unlimited Skype-to-Skype voice calls and instant messages. Partnerships such as these allow consumers another option for services such as voice and text that traditionally have only been available directly through the wireless providers (1).
The paper also explores the positive role that vertical agreements can play when promoting competition and innovation within a market. Requiring standardization of a product – as net neutrality does – removes a plane upon which firms can compete, and can advantage large incumbent players over upstarts by denying them opportunities to distinguish their product or compete for niche markets. Requiring services providers to offer all users access to all online content is costly, and this model does not fit into the needs of consumers who may not want or need broadband that supports heavy bandwidth activities such as online gaming and video streaming.
Without question, the FCC can and should intervene to stop anticompetitive practices, including anticompetitive vertical foreclosure. But these determinations should be made on a case-by-case basis and should require a demonstration that the carrier abused market power in a way that actually harmed consumers. A case-by-case approach would allow wireless providers to experiment with new and different Internet business models without risking an unnecessary regulatory response.