The organizers of Monday’s State of the Net conference asserted that “Snow does not stop the Internet.” Despite Snowstorm Jonas, the broadband worked seamlessly, allowing the conference to go on as planned, with speakers, moderators, and audiences members whose flights were canceled participating remotely. Of particular interest was the panel on zero rating (0), which featured an interesting debate and real-world insights from Facebook and the Wikimedia Foundation. However, some fallacious arguments regarding zero rating that emerged in the discussion need to be addressed.
Myth 1: Users must have access to the full Internet
One criticism of zero rating is that charging for some but not all content implies that users do not get access to the full Internet, which they see as discriminatory. Demanding the “full Internet” is unreasonable for technical, economic, and practical reasons. First, the Internet itself is unknowable. Even scientists who study it have a hard time measuring its boundaries (1), and regulators don’t even know the composition of the systems they purport to regulate (2). Much of what is discussed in debate is just a small part of the Internet, the World Wide Web. Furthermore, much of the content in even this known region of the Internet may be objectionable or inaccessible in other parts of the world — including adult content, pirated materials, and malware. It’s understandable that many find that content offensive for cultural, religious, aesthetic, or security-related reasons and do not wish to support it. Finally, much of the Web’s content is in English. Insisting that access to the Internet be an all-or-nothing deal thus forces people who are poor, illiterate, or who don’t speak English to pay (a lot) for content they will never access, let alone find useful.
This point was underscored by Kevin Martin of Facebook. He described how Free Basics, an ad-free, slim Facebook platform that features essential services, is offered as a free trial to first-time Internet users in developing countries. The company reports (3) that after 30 days, half of Free Basics’ users purchase Internet data of some kind. This illustrates why free Internet access alone is rarely enough to spur Internet usage. Typically, first-time users need both a monetary incentive (a free trial) plus a utility incentive (weather reports, produce prices, bus schedules, and health information, for example) to be convinced to adopt the Internet. Free access alone doesn’t make it clear how useful the Internet can be in their day-to-day lives, and most new Internet users won’t incur the initial search costs to find useful content for themselves. Facebook has pulled together various content providers so that their services are bundled and accessible for free from mobile operators, frequently with feature phones on 2G networks, which saves significant transaction costs for users and application providers.
There is no reason why people should be forced to pay for the full Internet when they want to access only one or a few applications. Even mature Internet users in the developed world spend most of their time at about 15 destinations. Because each of us does not value all content to the same degree, there is no reason why all content should have the same price. As such, flexible prices and diverse offers and services are perfectly in line with differing needs and tastes.
Myth 2: The FCC needs to provide guidance on zero rating
Critics of zero rating want the FCC to give more guidance regarding how it will address zero rating, given that the agency’s Open Internet rules allow for price differentiation. In the first place, the FCC should not regulate the Internet, and its attempt to create rules may well be illegal (4), violating both the Communications Act and the Constitution. Nine lawsuits, five of which are from small broadband providers and one from an entrepreneur, are pending. The FCC would be wise to refrain from any further rulemaking at this point. In fact, the very Title II regulations certain zero-rating critics lobbied in favor of actually allow price differentiation (5). If the FCC wants to regulate the Internet like the telephone network, then it’s logical that there will be different prices for different services, just like the price differentiation in local calling versus long distance, interstate versus intrastate communications, business versus consumer services, and low versus high-volume users.
Myth 3: Zero rating is discriminatory
The textbook definition (6) of discrimination is a difference in price for similar or identical products that is not justified by differences in product quality or cost. But zero rating is not price discrimination — it is price differentiation, a practice that is the essence of competition. Critics of zero rating try to justify consumers’ preferences and decisions as evidence of discrimination because they do not comport with some idealized form of Internet consumption. To them, the very presence of differentiation is proof of the purported problem. But the reality is that consumers value different content differently and make rational choices in their service selections — including choosing services that are free or inexpensive.
A proper consumer-harm test consists of two questions: Are prices higher, and is there less innovation? The question of a reduction in innovation is interesting. Critics of zero rating argue that the practice hurts innovation, but they have to date failed to produce any real evidence of said harm. These critics rely on theoretical and philosophical arguments (7) and inference from surveys (8) in which consumers prefer zero rating plans as evidence of de facto discrimination. One advocacy group produced a report (9) alleging that some 92 zero-rated programs in the EU are, by its own judgement, discriminatory. In any event, no regulator has produced a serious, quantified, evidenced-based assessment supporting the idea that zero rating creates harm to consumers and competition.
In general, telecom regulators are permissive, if not encouraging, of zero rating and related practices because they produce competition in the marketplace. Indeed, this is the very reason why a telecom regulator is chartered — to move the market from a state of full monopoly to one of full competition. It is not the job of the regulator to make aesthetic judgements for consumers. Should the FCC curtail T-Mobile, it would not only be a rebuke of Chairman Wheeler, who called the company’s programs pro-innovative and pro-competitive, but it would also upset the eight million customers who switched to T-Mobile in 2015 in part because of their zero-rated plans. About 95 percent of music on the T-Mobile network is zero rated, and its Free Music program has some 40 apps — a more comprehensive list of music streaming apps (10) is difficult to find. Similarly, regulators are wary of touching programs that consumers love (such as free NFL on Verizon’s FreeBee Data 360 (11)), and that help startup companies deploy their innovation (such as Aquto, Syntonic, Hipcricket and Datami on AT&T’s Sponsored Data plan (12)). Simply put, it’s not consumers who have a problem with zero rating, but instead a small set of advocates with a political agenda.