Why zero rating of internet usage must be banned

Week-long CRTC hearings will determine future of internet pricing and innovation in Canada.

net neutrality, net neutrality rules, net neutrality battles, zero rating

Zero Rating Ban:

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On Monday, the CRTC kicks off a week-long hearing into “differential pricing.” Hold on a second before you hit snooze on the alarm clock because this is incredibly important. The hearing will ultimately determine not just how much it will cost Canadians to use the internet, but also what new online companies and services may arise in the future.

Differential pricing is otherwise known as zero rating, a controversial practice where an internet service provider – either home or wireless – exempts certain services or applications from users’ monthly data caps. In Canada, where both home and wireless caps are on the low side compared to other countries, the issue is vital.

The Canadian Radio-television and Telecommunications Commission has received 140 submissions on differential pricing and will hear oral positions from 26 groups, individuals and companies this week. The arguments will span the gamut from enthusiastic support to steadfast opposition, plus some shades of in-between.

In a nutshell, ISPs and wireless carriers including Bell and Telus are arguing in favour of zero rating. They say it’s good for consumers because it makes their services cheaper to use. Quebec’s Videotron, for example, offers wireless plans that exempt 14 music streaming services such as Spotify and Deezer from monthly caps.

Critics such as Open Media argue that zero rating wouldn’t be necessary in the first place if carriers and ISPs simply gave their customers more data or even unlimited usage. They also say that letting internet providers choose which services get exempted is dangerous because it puts them in a position to pick what wins online.

Regulators in several countries including India, the Netherlands, Slovenia and Chile have banned zero rating outright.

U.S. and Canadian regulators have so far taken a more measured approach. ISPs here aren’t allowed to exempt their own content and cutting deals with application providers – say Netflix or Spotify, for example – where those companies pay the ISPs to get exempted from caps is also likely a no-no.

The Federal Communications Commission and the CRTC have, however, indicated they’re open to seeing how zero rating works when neither of those two situations is the case. That’s why T-Mobile is zero rating video services, including Netflix, in the United States and why the CRTC is now convening these hearings.

Proponents are selling zero rating as beneficial to consumers because it indirectly lowers their bills. Building networks is expensive, they say, which is why data caps are necessary in the first place – to recoup those investments. Exempting popular apps and services, however, are a way for ISPs and carriers to give customers a break.

Whether you buy that supposed benevolence or not is besides the point because the critics make much stronger arguments.

Their first counter-point – that ISPs could simply offer more data in the first place – is particularly poignant when the stats are examined.

Wireless carriers in the European Union and Organization for Economic Co-operation and Development who do not zero-rate video, for example, offer customers eight times as much data for the same price as those that do, according to Finland-based consultancy Rewheel:

zero rating

This is a key finding because the argument for providing “free” data for certain kinds of internet usage starts to fall apart when customers have much more data to use on whatever they want.

The second argument, about gate-keeping, is even stronger – it’s what India’s Telecom Regulatory Authority cited when it rejected the practice earlier this year.

“Differential tariffs arguably disadvantage small content providers who may not be able to participate in such schemes,” the regulator said. “This may thus create entry barriers and non-level playing field for these players, stifling innovation.”

That’s exactly the point. Zero rating gives ISPs and wireless carriers an important tool to shape internet usage and behaviour, which they should not be allowed to have for several reasons.

The first deals with whether customers really are getting a benefit. It’s arguable that some are, but it’s equally arguable that many aren’t.

Using Videotron’s Unlimited Music as an example, the company likely has many wireless customers who do not stream music at all and choose to use their monthly data allotments in other ways – say, video. By not having an exemption, they’re effectively paying more for their chosen monthly usage than customers who do stream music, which is unfair.

Then there’s the issue of smaller companies. The likes of Spotify and Deezer are exempted under Videotron’s plan, but what happens when a smaller streaming service comes along? Videotron says its zero rating offer is open to all comers, but there is an authorization process that applicants need to go through.

Will they get the same treatment as bigger, more popular companies? And if they don’t, doesn’t that just reinforce the bigger companies’ market positions?

There is also the arbitrariness of zero rating, an issue that a number of radio station owners including Corus and Rogers have raised in their CRTC submissions. Why, they ask, do streaming apps get exempted but not online radio stations? Is one form of music more deserving of zero rating’s benevolence than another?

I made the same point this summer when T-Mobile announced that it would zero-rate Pokemon Go. Yes, the game was popular at the time, but so were many others – and all of them were still counting against caps. Why were they effectively being penalized?

To put it in perspective, imagine if the electricity company decided to exempt kitchen stoves from monthly usage bills. Not only would microwave oven makers be upset, washing machine and toaster manufacturers would also want to know what was going on. Depending on when in the timeline this happened, it’s possible microwave ovens may never even have arisen as a result.

The same holds true on the internet. Shaping usage and behaviour inevitably drives people and therefore innovation away from certain areas, which is contrary to how the internet has evolved thus far.

ISPs and carriers should not be allowed to do this. Despite their most fervent wishes to the contrary, regulators must relegate them to the roles they’ve been playing so far – that of the neutral pipe providers. Allowing otherwise could mean that we’ll all end up using the veritable stove at the expense of the microwave or the toaster.

Will internet and wireless bills go up if ISPs and carriers aren’t allowed to have their zero-rating way? Industry boosters are already predicting it:

Indeed, prices probably will go up, but it’s a safe assumption that will happen with or without zero rating.

Bills going up isn’t the product of ISPs and carriers not having the ability to get creative with their pricing, but rather a larger competitive issue that’s entirely outside the scope of zero rating.

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2 Comments on Why zero rating of internet usage must be banned

  1. I agree with Open Media – the only reason zero rating is still a thing is because the ISPs artificially restrict the usage.

    You wrote a few years ago about my ISP (iiNet) zero-rating Netflix (http://alphabeatic.com/netflix-zero-rating-australia/) and I commented that I was OK with zero-rating if the only plans they offered had data caps, but ultimately I wished that they would simply offer unlimited plans.

    I never took advantage of the Netflix zero-rating (I took my TV from, ahem, ‘other’ sources) but over the years iiNet’s plans have changed, and moved towards larger quota (without zero-rating), and then unlimited plans.

    Hopefully, this is the way forward for all ISPs – unlimited plans are certainly the best scenario for consumers. If an ISP can’t be bothered to invest in their network, I’m sure there are others who will.

  2. Also, I love the electricity grid analogy!

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