Zero rating
has become the next network neutrality issue in light of two simultaneously occurring
marketplace developments: 1) wireless and now wireline carriers impose data
caps as a part of their revenue maximization strategy and 2) these very same
carriers want to create deal enhancers to improve the value proposition of more
expensive service tiers by offering zero rating to specific data streams. Can carriers get away with a strategy of
creating scarcity, rationing broadband capacity, despite its low incremental
cost, and upselling subscribers to more generous data plans at higher rates?
I provide a deep dive on zero rating in a paper available at: https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928.
The zero
rating issue generates the most controversy when carriers ration and tier broadband
access. While they may frame the matter in terms of congestion and network
management, in application, zero rating provides a convenient way to tier
service at different price points.
Broadband carriers largely have eliminated the prospect of actual
congestion and they have every right to recoup substantial infrastructure
investment. However, broadband capacity
does not closely match the cost characteristics of other metered, public
utility services, such as electricity and water. Broadband carriers incur insignificant extra costs
when increasing a monthly data allotment.
How else can they profitably offer truly unlimited voice and text,
particularly a few years ago when subscribers primarily relied on their
handsets for these services?
Unfortunately
carriers have resorted to zero rating as a solution to problems they have
created for consumers: “unlimited data plans” that punish high volume users
with throttling at 2G bit transmission rates; disabling subscriber commands not
to auto play commercials; and miserly data rate plans with high financial
penalties for overages.
Also in the
mix is the possibility for artificial congestion manufactured by carriers to
justify data caps. Consider the on
again/off again congestion subscribers of both Netflix and Comcast experienced.
A remarkable thing happened virtually overnight after Netflix agreed to a
preferred co-location/paid peering arrangement.
Congestion evaporated without any new facilities construction and
Netflix traffic returned to normal.
Network
neutrality advocates fairly point out that zero rating prioritizes specific traffic
streams, by making them more attractive to consumers in light of their lower
out of pocket cost. However, I believe
they overstate their case, particularly with the premise that zero rating
condemns people with low incomes to perpetual hardship resulting from subsidized
access to an inferior, curated sliver of Internet content.
Zero rating
offers access opportunities to individuals who want broadband access, but lack
sufficient discretionary income. A
subsidy provides an opportunity to test the waters and to decide whether to
change spending priorities. In
developing countries, penetration rates continue to rise to near that of
developed countries, because even poor people want and will pay for access.
Zero rating
also provides a new incentive for people with sufficient funds who do not see
the value proposition in ascending a steep learning curve toward digital
literacy, plus making even a small financial commitment in buying a smartphone
and subscribing to a monthly data plan. Surely
these people are not condemned to a lifetime of inferior access, because they
might opt to pay for access to the entire Internet cloud.
Lastly, we
should consider the consequences if the FCC—or any regulatory agency—rules against
a subsidy arrangement that consumers like.
Does the FCC really want to invoke fairness when doing so prevents consumers
from “free” access to certain video streams?
I provide a deep dive on zero rating in a paper available at: https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102928.
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