Network Neutrality Would Have Killed Unlimited Bandwidth Plans

Network neutrality has been in the news again as, over the past two weeks, proponents have been marshaling forces against the Federal Communications Commission’s push to undo the most significant piece of Internet regulation fostered by the Obama administration.

Not that it wouldn’t be a bad thing.

Net Neutrality was the touchstone of Obama Internet policy. He expressed support for the rule as far back as his 2008 campaign. Even so, debate about net neutrality remained contained within the policy sphere until Federal Communications Commission Chairman Thomas Wheeler began rulemaking in 2014. That effort attracted support not only from industry leaders such as Google and Facebook, but from such popular commentators such as HBO’s John Oliver, driving a record 3.7 million submissions during the FCC’s public comment period.

The FCC voted 3-2 in favor of the regulation in February 2015, part and parcel with a decision to reclassify Internet service providers (ISPs) as regulated utilities under the Telecom Act of 1996, declaring them akin to the landline phone companies of the 20th century. While not an executive order, it was another example of the White House bypassing Congress on creating new regulation—controversial because some Constitutional scholars believe only Congress had the authority to revise the Telecom Act’s language. That may all be moot if current Chairman Ajit Pai follows through on his plan to revise the rule.

Not all of network neutrality is contentious. Everyone agrees that ISPs should allow users to access all legal websites and use the device of their choice. The crux of the network neutrality dispute was whether ISPs could treat traffic differently as it crossed their networks, such as partitioning bandwidth for video streaming services or employing network management tools to ensure better error correction. This extended to pricing as well. Under network neutrality, Verizon or AT&T could not charge Netflix or YouTube a higher price for their use of network resources, even though those services exacted a cost in terms of capacity and management.

It is ironic, then, that Zero Rating became the first test of network neutrality.

Zero rating, or toll-free data, is the ISP practice of exempting certain services from consumer data caps. For example, your monthly wireless data plan may include 20 gigabytes of data, but you will incur added charges if you go over that limit. Applications providers who have zero rating agreements with the service provider do not have their data counted against the limit. T-Mobile’s Binge On is an example.

Facebook’s zero rating plan ran afoul of regulators in India, who considered it a net neutrality violation. In the U.S., groups such as the Electronic Frontier Foundation, Free Press and the Center for Media Justice have complained that it violates the FCC rule. They do have a point. While network neutrality was envisioned as supply side regulation—to prevent ISPs from putting some providers as a disadvantage by charging them more to reach customers, zero rating is a demand-side pricing practice that, in their opinion, fosters the same outcome—putting some providers at an advantage because customers don’t have no pocketbook limit on their use.

What undeniable, however, is that zero rating is a boon for consumers. At the end of the day, it gives them more data for the buck and helps close the digital divide. Instead, the India government’s ruling against Facebook has deprived some 19 million Indians of affordable Internet access.

This may be why the FCC until recently has been quiet about zero rating even as AT&T and Verizon adopted the practice. This changed the day after election day, when the agency cautioned AT&T that including DirecTV video streaming in its zero rating package might be unfair. Though left unsaid, the warning has implications for AT&T’s pending deal to acquire media and content giant Time Warner.

Along with illustrating net neutrality’s unintended consequences, the FCC’s inconsistency on zero rating issue also validates the criticism net neutrality opponents have voiced from the start—it hogties the rapidly moving information technology sector in a “Mother, may I” regulatory regime. When AT&T and Netflix agree on zero rating, it’s OK. Should AT&T include HBO, acquired via Time Warner, it’s not. Will the FCC permit zero rating for T-Mobile, which has 17 percent market share, but prohibit it for Verizon, which has 35 percent? We don’t know. That’s the problem. Ad hoc rulemaking serves neither consumers nor the industry.

Despite the so-called outrage, which has been much less compared to 2015, it is doubtful that Pai’s FCC will sustain the rule and, may go as far as re-reclassifying ISPs under Title I, where they were placed under the Telecom Act and where they rightfully still should be. Nonetheless, the best outcome might be Congressional action to amend the Telecom Act to prevent such arbitrary FCC tinkering in the future.

An earlier version of this blog ran on Inside Sources November 24, 2016