Take a Deep Breath – Zero-rating Benefits Consumers

by Mike Wendy on November 30, 2016

With news that AT&T plans to offer zero-rated content through its DirecTV Now offering, Net Neutrality zealots have come unhinged. According to one hyperbolic lede, “AT&T just declared war on an open internet (and us).”

Sure it has.

Those supporting the FCC’s dubious Open Internet Order believe that the new service crosses the line and violates (the purposely wiggly idea known as) Net Neutrality, unfairly discriminating against…

…the world.

So, with AT&T’s announcement, we’re at war (I guess).

But I hope the anti-zero-rating radicals are prepared for a big donnybrook, because customers like zero-rated / free data plans like DirecTV Now. In fact, I can’t see those plans going away any time soon.

According to Wikipedia:

“Zero-rating (also called toll-free data or sponsored data) is the practice of mobile network operators (MNO), mobile virtual network operators (MVNO), and Internet service providers (ISP) not to charge end customers for data used by specific applications or internet services through their network.”

As it applies to DirecTV Now, its “cable” content won’t count against the data caps of AT&T’s wireless subscribers, giving DirecTV (which is owned by AT&T) so-called “privileged access” to AT&T customers. “Consumer activists” feel this sets up a “nightmare scenario” wherein AT&T will seek to create the same type of access for non-affiliated content providers, essentially establishing a toll that would price “the little guy” out of the ballpark, undermining his voice and the “open Internet.”

Net Neuties want all zero-rating banned. Period. The FCC has thus far refrained from prohibiting the practice.

Let’s hope the Commision does not heed their specious entreaties.

Zero-rating is a private subsidy system, using positive discrimination to differentiate offerings in the marketplace. The content provider picks up the tab for consumers. Many sides benefit: content providers improve chances of customer adoption; consumers get free content; the network grows. This practice has long-been employed in the telecom space – 1-800 numbers are a good example. Further, it’s a tool used in every sector of our economy to derive broad and immense economic benefit for all involved.

The disturbing thing here is that the zealots aren’t concerned about consumer pricing. Heck, even they admit that consumers enjoy the subsidized / free data. They know these plans are popular.

Rather, the real reason that the they demand the FCC to outlaw zero-rating is because they want to control the content streaming over the Net. No speech shall have an advantage over any other. In their eyes, free data is discrimination (as in civil rights). “Diverse, little guy” communications are at stake. So is “democratic voice.” Etc. (content), etc. (content), etc. (content).

They bemoan that all this diverse speech could be shoved aside because of “corporate greed,” making it “impossible” for the little guy to speak on the same playing field as well-heeled competitors.

Consequently, it’s OK to render useless ISPs’ private property via government-mandated Net Neutrality – broadly neutering their ability to define how they want to serve content to their customers – because an “open Internet” (a content-oriented concept) is so important that censorship is justified. The laws of economics, differentiation, and competition must be suspended. Consumers simply aren’t smart enough to know what’s good for them.

“We will force feed y’all your digital broccoli. Open up and start chewin’.”

But how does this accord with the First Amendment, which demands that it is the right of the communications provider – in this case the ISP – to determine how content streams over its network, not Uncle Sam?

That’s correct, it doesn’t. It can’t.


The subsidy abides, man. Consumers demand it. ISPs should be allowed to offer the communications services they see fit, free from Net Neutrality censors.

Activists pushing for FCC-mandated Net Neutrality should sleep with one eye open because if there’s any war here, it’s them working through those needless rules to ensure that the Internet stays as consumer-unfriendly as possible. “Pitchforks” are comin’ for them if they get their way and the FCC prohibits these popular offerings.

Arthur Rhodes December 1, 2016 at 4:13 pm

The problem is they created a disease to sell the cure. Arbitrary data caps, but don’t worry we have the solution! Sponsored data! The other problem is this: How does an upstart video provider compete with an established player with deep pockets? As a consumer, I am going to favor the content that doesn’t count against my cap. Same reason why I don’t watch your videos, I am not wasting my limited data on “ISP lobbyist productions”. Can you afford to zero rate your videos?

After Sprint offered “double the high-speed data” on its network, 20GB per month for family plans, AT&T responded by doubling data, too, through shared plans of 30GB to 100GB a month. Verizon doubled its own customers’ data, while Sprint offered yet another doubling to stay ahead of AT&T and Verizon. Suddenly, network constraints had apparently disappeared.
Where did all this extra capacity come from? The carriers’ networks didn’t double in size overnight. The capacity was always there—carriers just weren’t allowing customers to use it until one decided to boost data and the others followed.

Mike Wendy December 1, 2016 at 8:07 pm

Youtube wasn’t always the Youtube it is today. They were competing against the movie theaters, the TV networks, the cable programmers, etc. It was an upstart, pre-FCC Net Neutrality. If I thought it was important to zero-rate, I’d do it. If that’s my model, sure. But I don’t (right now). If I want to run MediaFreedom TV and scale something big, I might.

Network constraints did not suddenly disappear – they have always been limited by physics of the spectrum held and used, network design and investment to commandeer those physics, and state and local citing matters, among other things. The wireless competition you mention all come with different price tags and caveats built on usage models to accord with each unique network’s design and investment characteristics.

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