FCC Eyes New Business Model

Drilling down to basics as stakeholders weigh zero-rating plan

Why This Matters

WHY THIS MATTERS
The FCC has the power to declare sponsored data a zero or a hero.

Understandably, zero-rating plans—which allow mobile customers to download or upload online content without incurring data charges—are not without controversy. Depending on who is doing the talking, they’re either potentially anticompetitive violations of the Federal Communications Commission’s new network neutrality rules, or an innovative business plan that could help drive broadband adoption and benefit low-income Web users.

But the real key to the future of those business plans, which are becoming increasingly attractive, is what the FCC decides they are.

The commission is still vetting information from the major Internet service providers—the mid-January deadline for information in its inquiry was pushed by the recent Jonas blizzard. That inquiry appeared to also be pushed by a storm of zero-rating-plan critics after FCC chairman Tom Wheeler signaled T-Mobile’s new Binge On offering was just the kind of innovation the commission’s new Open Internet Order would not be discouraging.

After what appeared to be something of an about-face by the chairman, AT&T responded: “We remain committed to innovation without permission and hope the FCC is too.”

Wheeler insisted two weeks ago that the FCC’s inquiry was merely that, telling reporters that he had not sat in on any of the meetings, nor had any of the members of his staff.

Republican commissioner Michael O’Rielly countered that the chairman controlled the bureaus.

“We do all know that the bureaus are at his discretion because, otherwise, I would get a lot more information,” O’Rielly said. He added that he looked forward to that information because he remained troubled by the direction the FCC was heading, specifically by the “mother may I” approach of the commission having to bless, or not, new business models. O’Rielly also expressed continued concern about net neutrality rules.

Zero Balance

The new Open Internet Rules do not prevent zero-rating plans. They do, however, prevent paid prioritization, and also give the FCC some wiggle room through a general conduct standard with which it can review any business practice it thinks might have the effect of favoring some content over others for anti-competitive purposes.

“Because the Internet is always growing and changing, there must be a known standard by which to determine whether new practices are appropriate or not,” Wheeler said back when he proposed the Title II-based rules.

At a State of the Net event in Washington two weeks ago, people on both sides of the issue were trying to help the FCC decide.

Roslyn Layton, a visiting fellow at AEI’s Center for Internet, Communications and Technology Policy, made the case for why zero rating was not the threat to Internet openness some have claimed.

She said that there is no good or service that is not subject to a differential price and added that it was “strange” to her why Internet service would be singled out.

Layton also said one of the best things about the history of TV, radio and the Internet was that advertisers and sponsors were allowed to lower the cost to end users. That’s a key difference between the way matters are treated in the U.S. and Europe, with the latter requiring a media license fee, which adds up to fewer channels and less content.

The Internet also benefits from third-party subsidization, in Layton’s view. She pointed out that edge-provider Google effectively zero-rates its search by displaying ads.

Negative View

One criticism of the FCC’s approach to its new Internet rules is that they target ISPs while leaving edge business practices alone. ISPs aren’t explicitly asking the commission to regulate the edge, but they do point out that there are opportunities for edge providers to interrupt the virtuous circle that the FCC appears to gloss over in focusing on regulating ISPs. (FCC chairman Tom Wheeler has said edge providers are outside the scope of the rules.)

On the other side of the issue is Stanford Law School professor Barbara Van Schewick, who said the key to the issue is whether a zero-rating plan has the effect of “picking winners and losers online.” Van Schewick said that while the bright-line net neutrality rules are about technical forms of doing that via slowing or blocking traffic or buying a technical advantage for a fee—which is no paid prioritization—zero rating is jsut a “bunionsess model” form of favoring some content over others. Comcast’s Stream TV, for example, was not about subsidizing.

Zero rating, she argues, is just a different form—a business plan rather than a technical limitation or advantage—of favoring some content over others. Comcast’s Stream TV, for example, was not about subsidizing access, but instead about “giving a competitive advantage to their own application.” And that, she said, is a key net neutrality concern.

Kevin Martin, former FCC chairman and now an attorney for Facebook, which has its own zero-rating program to boost basic connectivity, said he didn’t have any problem with the FCC taking a case-by-case approach to vetting business plans under its new rules, but said zero rating can be beneficial.

Martin signaled the FCC was right to be vetting the plans, but did not throw cable operators under the bus, making the point that they would argue their subs have already paid for the programming ISPs are zero-rating.

But unlike cable operators, who have issues with the FCC’s case-by-case approach under the general conduct standard, Martin was all for it. “I think an analysis of what’s actually going on with each program is appropriate and the FCC got that component right,” Martin said.

Layton argued zero-rating plans aren’t just for the big dogs; they benefit smaller network providers who can’t compete with larger providers in terms of speed but need another way to differentiate themselves.