Zero Rating Actually Costs Broadband Customers More, EU Study Finds

from the ill-communication dept

For years now we've discussed how large ISPs have (ab)used the lack of competition in the broadband market by imposing completely arbitrary and unnecessary monthly usage caps and overage fees. ISPs have also taken to exempting their own content from these arbitrary limits while still penalizing competitors -- allowing them to use these restrictions to tilt the playing field in their favor. For example an AT&T broadband customer who uses AT&T's own streaming service faces no penalties. If that same customer uses Netflix or a competitor they're socked with surcharges.

The anti-competitive impact of this should be obvious.

But large ISPs have muddied the water by claiming that zero rating is the bits and bytes equivalent of a 1-800 number for data or free shipping. Customers who don't understand that usage caps are arbitrary nonsense from the get go often buy into this idea that they're getting something for free. And Ajit Pai's FCC has helped confuse the public as well by trying to claim that this model is somehow of immense benefit to low income communities.

Guess what: it's not. Studies from Mozilla have shown that zero rating isn't some mystical panacea. You might recall that Facebook has spent years trying to offer a walled-garden internet service to developed nations where select content is "zero rated," something that was banned in India when regulators realized that letting Facebook determine which content was most widely accessed was a decidedly stupid idea. Facebook's altruism on this subject was ultimately revealed to be a ham-handed attempt to dominate advertising in developing nations.

Now a new study (pdf) by the non-profit Epicenter.works has shown that zero rating models actually increase costs for the end user, the exact opposite of what incumbent carriers and Ajit Pai's FCC have claimed.

While the EU passed net neutrality guidelines back in 2016, it left actual enforcement to each country. Mirroring efforts in India and Japan, some EU countries prohibited zero rating entirely. Others took a more hands off approach and allowed such models (usually based on ISP promises that such practices aided low-income users). The study took a look at 30 EU nations and found that those that prohibited zero rating saw a double-digit drop in the cost of wireless data plans compared to countries that embraced the concept.

The study theorizes the higher costs are due to carriers being incentivized to jack up the cost of accessing normal, "non-zero rated" content in a bid to make zero-rated content seem more attractive. The EFF has been noting for years how this kind of gamesmanship distorts the market, putting natural telecom monopolies in a troubling position of determining which content and services will be cap-exempt (usually their own or whoever can afford to pay them). The EFF was particularly concerned this would be a cornerstone in the wake of AT&T's $86 billion acquisition of Time Warner. Its concerns proved well founded.

The EFF continued to make that same point on the heels of this latest study's findings:

"Zero rating by wireless carriers has effectively become a tool for them to direct their user traffic under the guise of giving consumers a benefit,” EFF lawyer Ernesto Falcon told Motherboard in an email.

“This EU study reveals that it actually is a more covert way to raise prices and increase their profits with the added benefit of anti-competitive self dealing,” he added. “This is particularly problematic with low-income users, which tend to be people of color, because they can only afford wireless broadband services and forgo wireline connections where zero rating is not a predominant practice."

You might recall that the FCC's 2015 net neutrality rules didn't specifically ban zero rating, but left the door open to thwarting such efforts if they were found to be clearly anti-competitive. But the FCC figured out too late that ISPs were already using zero rating to favor their own streaming services, and just as the former Wheeler FCC was about to crack down on the practice, Trump was elected, Ajit Pai was appointed to head the FCC, and the agency dismantled the country's first meaningful net neutrality rules entirely. AT&T's now doing exactly what critics predicted, and few seem to care.

Net neutrality supporters have since come to realize that any real net neutrality rules that don't thwart anti-competitive use of zero rating are useless. California's looming net neutrality rules, for example, allow zero rating if it applies to all classes of traffic (games, video, music), but prohibits it if it's used to specifically favor one company's content. Should Congress ever get its act together and pass a real net neutrality law (which still seems like long odds given telecom's lobbying grip), the patently obvious anti-competitive and cost impact of selective zero rating is something that shouldn't be forgotten.

Filed Under: broadband, consumers, data pricing, eu, zero rating