T-Mobile Wades Into Net Neutrality Minefield With Plan To Zero Rate Netflix, HBO

from the slippery-slope dept

Fri, Oct 30th 2015 12:53pm — Karl Bode

We've discussed many times now how zero rating, or the carrier act of letting some apps or services bypass a user's broadband usage cap, sets a horrible, dangerous precedent. By its very nature, letting one company or service bypass usage caps immediately puts non-whitelisted services, small businesses or non profits at a disadvantage, tilting the entire playing field and distorting the entire democratic nature of the Internet. For some reason, this is a very difficult concept for some consumers to understand, so lathered up they are by the initial lure of getting something for "free."

Of course you're not getting something for free. Usage caps are entirely arbitrary, untethered from financial or network performance necessity. They're an artificial construct, and allowing some services to bypass them (for a fee or otherwise) puts the ISP in the powerful position of picking winners and losers, instead of just doing its job (the delivery of bits). When it comes to net neutrality, the battlefield is no longer focused on ham-fisted throttling or blocking of services, it has shifted to more nuanced and clever abuses of gatekeeper power including interconnection, usage caps, and zero rating.

Last year T-Mobile introduced its first foray into zero rating called Music Freedom. Under the program, the biggest and most popular music services no longer count against user usage caps. That's great if you're, say, Spotify or Pandora, but not so great if you're an independent streaming radio station operating out of Cleveland, or an innovative new startup not yet on most users' radar. This kind of practice does violate neutrality, even if most regulators are painfully and utterly oblivious to the problem, but the violation isn't as idiotically obvious as the kind of neutrality infractions we're used to.

With its music zero rating efforts well underway, T-Mobile is now rumored to be planning to zero rate the biggest video services including Netflix, Sling TV and HBO. While the plan isn't supposed to be unveiled until November 10, early news of the plan was revealed on Twitter by reliable leaker and reporter Evan Blass:

T-Mobile's Uncarrier 10 to offer unlimited high speed data for watching select streaming video services like Netflix, HBO, etc.
— Evan Blass (@evleaks) October 29, 2015

T-Mobile CEO John Legere tried to re-inflate the hype balloon, but Blass offered up even more details about T-Mobile's plan, noting that HBO, Sling TV, Netflix and Hulu all appear to have been usage-cap whitelisted under the looming program:

.@JohnLegere Is it called BingeOn, by any chance, compatible with Netflix, HBO, Hulu, and Sling (all of whom will offer discounts)?
— Evan Blass (@evleaks) October 29, 2015

To be clear, Legere's brash demeanor is entertaining as hell in the normally dull telecom sector; his profanity-laden tirades and amusing press releases second to none. But when it comes to net neutrality, Legere has proven to be just as tone deaf as the stodgy duopoly sector counterparts his character mocks on a weekly basis. Legere opposed Title II reclassification and tougher neutrality rules for all the usual nonsensical reasons, including claims that protecting net neutrality would "kill innovation and competition."

Don’t let the gov’t kill innovation. It has made us the fastest growing wireless company in America. #netneutrality
— John Legere (@JohnLegere) November 10, 2014

And when the anti-competitive nature of his zero rating ambitions were first pointed out, Legere insisted he was "genuinely surprised" by the backlash to such a "pro consumer" idea. But even wearing magenta high tops, zero rating is zero rating. Give consumers the choice of a service that's cap exempt and a service that isn't, they'll pick the cap-exempt service the majority of the time. That's a wholesale distortion of competition (pdf), and it's a carrier injecting itself into the position of middle man in an Internet app and service ecosystem that's healthier and more competitive with them out of the way.

And while plenty of consumers, reporters, and analysts will be superficially thrilled by such a model, letting a carrier give preferential treatment to one app over another sets the stage for a future Internet where startups and independents are relegated to the outer fringes of the 'Net. It's a neutrality slippery slope we seem intent on running directly toward, cheering all the way.

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Filed Under: net neutrality, streaming video, video, zero rating
Companies: netflix, t-mobile

35 Comments

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Matthew Miller, 30 Oct 2015 @ 1:01pm

So.... it's clearly not about available bandwidth
The service provider complaint always seems to be that streaming services are blocking all of the tubes. But with this, someone sitting next to me can stream movies constantly for a month while I'm blocked from using orders of magnitude less data trying to get my work done?

Sigh.
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Anonymous Coward, 30 Oct 2015 @ 1:12pm

I notice that the big competitors to the paid services, YouTube and Vimeo at al. are not mentioned. What a suprise, this is just another way of middlemen retaining control, and profit from what is published on the Internet.
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Anonymous Coward, 30 Oct 2015 @ 1:25pm

I'm having a hard time seeing this as anti-consumer. What is the downside to consumers?

What if instead of making a deal with T-Mobile, Netflix et al told customers that they will reimburse them if they are charged for overages? It would be a program similar to how banks will refund ATM fees incurred when using a third party machine. Would that be a net neutrality problem?

I think what makes this okay under net neutrality rules is that they are making some services cost less to access and that isn't the same thing as making other sites cost more to access. If Lexus makes a deal with the toll road operator to cover all Lexus tolls, that isn't unfair to me in my 47 Lamborghinis.
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Stu, 30 Oct 2015 @ 1:46pm

Re:
The "downside" is in the long run, when new services are never created because they simply can not compete with a service who is free of data caps when theirs is not. If a start up came up with a cool new UI or backend, even a better selection of movies or music, but are not exempt from data caps, they are going to have a hell of a time getting users to even try their service, who would choose the one that would eat up their limited data when there are "free" carrier approved apps? Only the biggest with the most money will be able to pull that off. After awhile, why would anyone try to create something better?
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Anonymous Coward, 30 Oct 2015 @ 1:47pm

I think what makes this okay under net neutrality rules is that they are making some services cost less to access and that isn't the same thing as making other sites cost more to access.

Because they're never going to raise their rates/lower their caps?
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Anonymous Coward, 30 Oct 2015 @ 1:48pm

Though it benefits customers, I would rather see all traffic handled the same way.
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Anonymous Coward, 30 Oct 2015 @ 1:55pm

Re:
Because any startups are screwed from the get go. "Oh that new site eats what little data I am allotted? Well never going back there." This plainly shows that ISPs have no issue with bandwidth usage as video streaming is one of the largest data hogs there is. As the article mentions, this lets ISPs decide who will succeed and who won't.
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Anonymous Coward, 30 Oct 2015 @ 1:56pm

Re: Re:
What's the difference if Netflix pays T-Mobile or if they reimburse customers?
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Stu, 30 Oct 2015 @ 2:10pm

Re: Re: Re:
If Netflix paid the carrier, that's the same thing. Only large established companies would be able to pay for preferential treatment, squeezing out the competition, therefore limiting choice down the road. If Facebook paid the carriers to exempt their service from any data usage, no one would use any new social networks therefore stagnating the market making Facebook even larger.

Now if Netflix reimburses the customer on their own, then that, IMO is another thing all together and is not the carrier/ISP playing favorites. I believe there are already examples of this in the marketplace, like car companies giving away "free gas for a year" by reimbursing the customer, hoping their choose their product over another. Would be more like a rebate. I don't think there is anything to be regulated there, but I see your point and it is closely aligned.
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duane (profile), 30 Oct 2015 @ 2:14pm

Unless it's a hoax...
Plans for milking startups are already in the woks over in Germany.
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duane (profile), 30 Oct 2015 @ 2:16pm

Re: Unless it's a hoax...
sorry, I guess you don't put the URL in the URL box?!?
http://techcrunch.com/2015/10/30/guaranteed-good-transmission-quality-vs-paid-prioritisation/
is the background of the comment I made.
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Anonymous Coward, 30 Oct 2015 @ 2:20pm

I don't get it. These are the most bandwidth hungry things on the internet. If they can afford to zero rate them why do they need usage caps at all?
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Anonymous Coward, 30 Oct 2015 @ 2:23pm

T-bubble
In the US they can't see why it might be bad for consumers if it's harder for new companies to join a market and in the EU they call net neutrality a myth*.
At least they are consistent across the globe in creating their own view of the world.

*Tweet by PR guy. Discussion about German Telekom charging startups extra fees after the new 'net neutrality' ruling and how they got the copper net:

Sadly wrong: The net wasn't financed with taxpayers money. Another myth. Like net neutrality.
https://twitter.com/phil_em/status/659837260511211520
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Anonymous Coward, 30 Oct 2015 @ 2:27pm

Re:
$$$
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Anonymous Coward, 30 Oct 2015 @ 2:46pm

I think what makes this okay under net neutrality rules is that they are making some services cost less to access and that isn't the same thing as making other sites cost more to access.

No, those are exactly the same thing. It's one of the most basic rules of mathematics. If A is less than B, then B is greater than A. If site A costs less to access, then site B must, by definition, cost more to access. How can anyone have passed elementary school without having learned this?
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Kal Zekdor (profile), 30 Oct 2015 @ 2:48pm

Re: Re: Unless it's a hoax...
URL box is for a link to your website. The duane in your first post is now a link to techcrunch.
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Kal Zekdor (profile), 30 Oct 2015 @ 3:04pm

Re:
Not quite. These types of things get lauded even by some net neutrality advocates as "consumer friendly" because the cost of some services is being dropped compared to the existing baseline. This does not, via an absolute measurement, cause other services to cost more. The problems are:

1. Relative costs certainly are changed, putting the ISPs in the position of picking winners and losers. This kind of influence usually results in antitrust actions.
2. ISPs often provide competing services. They certainly should not be allowed to zero-rate their own services.
3. That they are able to zero-rate the most bandwidth intensive services proves that Caps were never about Network Congestion. They have been abusing their market power for years to gouge consumers. This, to me, is the most damning piece. That they've decided to gouge a little less is not something to be applauded.
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Mike Masnick (profile), 30 Oct 2015 @ 3:34pm

Re:
What if instead of making a deal with T-Mobile, Netflix et al told customers that they will reimburse them if they are charged for overages? It would be a program similar to how banks will refund ATM fees incurred when using a third party machine. Would that be a net neutrality problem?

I think this is a really interesting thought experiment that's at least worth exploring. But I think this misses the real crux of the concern, which is not the charges, per se, but the *caps* in the first place.

That is, under such a plan, when you have a service that is an effective monopoly, who can pretty much set the caps at will, then the incentive here is to put in place the caps to get the content/service companies to pay more (either to the access provider or directly to the consumer). Either way the cap itself is an artificial barrier that gives certain advantages to some players.

And I think that's what the real problem is.

It's easy to argue that this is about providing a benefit to the consumer -- but that's only if you ignore that the "benefit" is avoiding the *ANTI-CONSUMER* nature of the cap in the first place.

Thus, the argument that it's pro-consumer is a little weak given that it's only pro-consumer in helping them avoid the arbitrary anti-consumer policy that was put in place earlier.

In your ATM example, people were pissed when ATMs started charging fees. Yes, it's nice that some banks would repay those fees, but the fees were the problem in the first place. Having a bank repay them may help consumers avoid some of those fees, but doesn't deal with the real anti-consumer aspect of the fees in the first place.
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thejynxed (profile), 30 Oct 2015 @ 5:04pm

Re:
Those are just minor details that will be worked out in deals down the road. I imagine that the first carrier to zero rate Youtube is going to grab a ton of subscribers from the others, considering the flagship phones are available from every carrier now and not just locked to AT&T or Verizon (in the US, at least).
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Anonymous Coward, 30 Oct 2015 @ 5:26pm

So basically a carrier having a bandwidth cap in the future will be anti-competitive (says start ups) .
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Anonymous Coward, 30 Oct 2015 @ 5:59pm

Re: Re:
All costs are relative. In the US (or the commodities markets) they are relative to the dollar. In Britain, they are relative to the pound or the euro. In ancient Rome, they were relative to various coins which contained various amounts of gold and silver. In some agricultural areas, even today, costs are relative to the major crop/livestock. There is no "absolute cost" measurement available.

In this case, defining costs relative to an arbitrary "baseline" cost is meaningless. What should the baseline be? I could go to Kansas City and get the a better "baseline" for less from Google. I can go to Europe and get that same "baseline" for half the cost relative to the dollar. Or I could go to rural Africa and find out that the "baseline" would cost hundreds of thousands of dollars since I'd have to build the infrastructure myself. Unless you can find some objective meaning of "baseline cost" (and if you can do that, you have a nobel prize in economics to claim), then we have to go back to the old standby of comparing the costs of one thing to the costs of another, usually through an intermediate like the dollar.

Otherwise, I'm just going to claim that the baseline cost is actually several thousand dollars a month, and therefore zero rating causes all costs to decrease.
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Jardinero1, 30 Oct 2015 @ 6:19pm

Zero rating is a net subsidy to other services not zero rated. For example, say I have a 10 gig a month plan and I consume Netflix, Pandora and two or three lesser media services. Without zero rating, they all count towards my bandwidth limit. If Pandora and Netflix are zero rated, then the bandwidth I would have consumed on those two services is now re-allocated to the lesser services. I can now consume more of the lesser services without breaking my usage cap.
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Anonymous Coward, 30 Oct 2015 @ 10:19pm

Re:
Also note you consumption has been directed to the services your ISP has chosen for you, and use of the lessor services limited by the cap. Even if you prefer the lessor services you will make more use of the uncapped services.
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techflaws (profile), 30 Oct 2015 @ 11:05pm

Seems the Magenta has gone to their heads. Just the other day the German spokesman of the Deutsche Telekom posted this bit of genius insight on Twitter:

"Sadly wrong: the net wasn't financed with tax payer money. That's a myth. Like net neutrality."

which of course he doubled down on with even more stupidity when the backlash came. Also, the Telekom CEO just publicly mused about the fairness (!) of taking a small percentage of any startup's revenue daring to use "his" lines.

So, if net neutrality is a myth, why doesn't Coca Cola have to pay the water utilities a premium when turning "their" water into something more valuable?
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Anonymous Coward, 31 Oct 2015 @ 9:00am

Re: Re:
> I think this misses the real crux of the concern, which is not the charges, per se, but the *caps* in the first place.

I think that's true. This highlights the usage caps problem. This isn't a net neutrality issue.

When you dig into it, usage caps is really just another way of saying wireless plans are too expensive because you can buy as much data as you want (within reason).

There are cable ISPs in Canada that have made deals with companies like Spotify (customers get free Spotify). Is giving free subscriptions to Spotify a net neutrality issue?
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Anonymous Coward, 31 Oct 2015 @ 9:06am

Zero rate, meet slippery slope
T-mobile, your doing it wrong! If they have the apparent bandwidth to zero rate Netflix and HBO traffic. That'd be akin to gas stations offering cheaper gas rates to domestic vehicles over imports.
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Anonymous Coward, 31 Oct 2015 @ 9:39am

What this Zero rating will do in the longer term is force independent directors and film producers into the arms of the middlemen running a more or less traditional publishing companies. That is it benefits the big corporation middlemen by reducing independent producers to the margins where data caps will keep their audiences small unless they can strike a distributions deal, and in the process cede control of their work, and most of the profits to the middlemen.
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Anonymous Coward, 31 Oct 2015 @ 12:27pm

Re: Re:
What really bothers me is how service providers don't do anything to remove caps in locations during times that they aren't needed.

There is a limited amount of spectra that can be used at any given time. I get that and have no problems with it. But what if I'm at a location at a specific time where no one is using their cell phone. Should my usage then count against my 4G usage?

Also many people have limited 4GLTE plans that limit usage to, say, 1 GB after which you get an unlimited slower speed. What I don't get is why don't service providers (and maybe they do and they hide how to use it someplace and they don't advertise it) offer a way to toggle high speed usage on and off so that I can turn it off if I'm not doing something important so it won't count against my high speed limit but turn it on if I'm doing something important. If it's off it will only give me high speed (and not count it against my limit) if the necessary spectra isn't being saturated. Cell phones have gotten more than sophisticated enough to handle all this so I don't see why they haven't implemented something like this by now.
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Kal Zekdor (profile), 31 Oct 2015 @ 4:37pm

Re: Re: Re:
When you're referring to changes in price due to a specific change (e.g., zero rating certain services), then obviously the baseline price is the price at the point in time prior to said changes.

Yes, the "baseline" can be arbitrarily decided, but contextually it's abundantly clear what should be the comparison point.
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Kal Zekdor (profile), 31 Oct 2015 @ 4:51pm

Re: Re: Re: Re:
Additionally, say that you do want to compare the cost of zero-rated (say, Netflix) vs capped services (say, Youtube) to an arbitrary baseline of $1000/mo. Focusing only on the data costs, of course.

If you're charged $10/gb (again, arbitrary number, doesn't matter), and both services use 10gb/mo, then, before zero rating:

Netflix - $100/mo - $900/mo cheaper than baseline.
YouTube - $100/mo - $900/mo cheaper than baseline.

After Zero-Rating:

Netflix - $0/mo - $1000/mo cheaper than baseline. Decrease of $100/mo relative to baseline.
YouTube - $100/mo - $900/mo cheaper than baseline. No change according to baseline.

In summation, it doesn't matter what baseline you choose to compare against, zero-rating one service does not increase the absolute price of another.

Now, if you could stop complaining about completely meaningless semantics for a second, you might actually finish reading my original post to see that I was agreeing with you.

**shakes head**
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Anonymous Coward, 31 Oct 2015 @ 7:42pm

Re: Re: Re: Re: Re:
My diction wasn't very clear. In your example, the way you used the $1000 dollars was simply as a currency. You created a new currency which was worth $1000, and then priced everything relative to that new currency.

The "baseline" (according to what I was thinking when I used the word) that you are using is $100/month for Netflix and $100/month for Youtube. But those values of $100/month are not absolute measures of any kind of value. You just picked them based on the price you theoretically would have paid for those services at an arbitrary time and an arbitrary location from an arbitrary service provider without zero rating. The only way those might be absolute in some sense is if you took them from a perfectly competitive market. Which you didn't, since there isn't a perfectly competitive market to take them from. And even then it wouldn't really be absolute, since the supply/demand curves for data aren't differentiated based on the use of the data, so we don't know what the price paid specifically for Netflix is.

If I used Google's price of $70 as my initial baseline (ie. I arbitrarily decide that this is the correct baseline price) then before zero rating I paid $70/month for both, or $35/month for each individually.

After zero rating:

Netflix - $0/mo - $35/mo cheaper than baseline.
YouTube - $100/mo - $65/mo more expensive than the baseline.

Or I assume a baseline of $1000/month for each (because those ISPs are just so darn generous) and get:

Netflix - $0/mo - $1000/mo cheaper than baseline.
YouTube - $100/mo - $900/mo cheaper than the baseline.

Which baseline you choose to compare against is really the only thing that matters. And since there isn't any objective way to pick a baseline (again, if you find one then you have a Nobel prize waiting for you), the next best thing is to measure the price of one service (Netflix) relative to the price of a competing service (Youtube).
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Anonymous Coward, 1 Nov 2015 @ 2:54am

Re:
That's only true if someone already has a Netflix/Pandora/... account. If they use a competing (non zero rated) service instead, there is a considerable chance that they'll switch to a zero rated competitor.

Your comment also doesn't take into account the possibility that people may shift more of their media consumption on to their zero rated services (since they know they don't have to think about how much data they're using), and ultimately decide that their other services are no longer used enough to be worth the money.
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nasch (profile), 1 Nov 2015 @ 6:35am

Re:
Zero rating is a net subsidy to other services not zero rated.

Only to those services that don't compete with the zero-rated ones.
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Kal Zekdor (profile), 10 Nov 2015 @ 5:43pm

Re: Re: Re: Re: Re: Re:
Except you still miss the point that it doesn't matter what baseline you choose. In your example, YouTube is $65/mo more expensive than baseline before zero-rating, and $65/mo more expensive than baseline after zero-rating.

$65/mo - $65/mo = $0/mo = No change.

The act of implementing the zero-rating does not change the price of a non-zero-rated service, by definition. The only changes in price are to those services which are zero-rated. This is a bad thing, because it gives those services an unfair advantage.

Netflix Data Costs:

Z-2mo (2 months before zero-rating): $35
Z-1mo: $35 (-$0 difference)
Z-0mo: $0 (-$35)
Z+1mo: $0 (-$0)
Z+2mo: $0 (-$0)

YouTube Data Costs:

Z-2mo: $35
Z-1mo: $35 (-$0)
Z-0mo: $35 (-$0)
Z+1mo: $35 (-$0)
Z+2mo: $35 (-$0)

As shown, only the zero-rated service (Netflix) experiences any change in cost. I really don't know how to explain this any clearer.
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My Mobile Blog, 18 Jan 2016 @ 2:00am

Completely in favor of net neutrality
Completely in favor of net neutrality, consider a scenario where people do limited web browsing but to access specific content they need a different plan, why exactly. People must be allowed to access the whole of internet if they have a WiFi or data connection.
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