Zero-rating: putting Net Neutrality to the test

It’s been an intense 10 months since the FCC approved its latest Open Internet rules (aka Net Neutrality).

On the wired side, we’ve seen the unbundling of content, as channels such as HBO (via HBO Now) and ESPN (via Sling TV) have split from cable to go “over-the-top” with direct-to consumer offerings.  These are a direct result of the clear FCC rules prohibiting broadband providers from throttling, degrading, or otherwise fucking with this internet traffic.  This is clearly pro-consumer, as people can now buy the channels they want unbundled from the crap they don’t, and it’s pro-innovation, in that even the smallest video startup is now competing on even footing with the big guys — I can launch a video service tomorrow that competes head-on with HBO or ESPN, and both of us have exactly the same distribution, without having to cut a deal with the cable company.

On the wireless side, it’s been much more of a circus, as wireless providers experiment with a variety of so-called “zero-rating” plans.  Zero-rating is the practice of selectively exempting certain content from wireless data caps.  Zero-rating isn’t monolithic — there are many ways one can do it, which are varying degrees of bad — which is why the FCC didn’t explicitly rule on zero-rating, but rather left it up for review on a case-by-case basis.

The two cases that are happening right now are T-Mobile’s Binge-On, which exempts certain video providers from data caps (and throttles the speed of all video), and Facebook’s Free Basics (formerly, which offers free access to Facebook and partner content to mobile users in India and Africa.

Both have been controversial, and Free Basics wildly so.

The question that we’ve been wrestling with is: if you believe that exemptions from data caps are pro-consumer (and this is not a given), then to what extent to these programs enable or limit open competition?  To what extent are they “open” or “neutral”?  To what extent are the underlying platforms controlling access, playing favorites, and limiting competition?

Looking at it that way, then Free Basics is really, really, really bad, and Binge-on is just kind of bad.

With Binge On, any “qualifying provider” can join the program and have their video content exempted from participating users’ data caps (here are the exact terms).  So, you still need to jump through a hoop to get outside of the cap, but theoretically anyone can do it; you don’t need to cut a special deal with T-Mobile.  Then, T-Mobile also throttles download speeds of all video for participating customers (regardless of whether the source is a Binge-on partner).  While this is sucky and disingenuous, and clearly violates the FCC open internet rules, it doesn’t have as huge a direct impact on competition & innovation as Free Basics does.

The question Binge-on raises is: are data caps necessary at all, and what impact does throttling video have on video innovation and investment in network capacity.  Those are valid points which are central to the theory of the virtuous cycle of investment in content and infrastructure and the reason for the FCC’s ban on throttling by content provider or by class of content (in this case, video).

Free Basics, on the other hand, is creating a Facebook-controlled walled-garden — a modern-day “AOL on the Internet” — where partners must both be approved on a one-by-one basis, and must also submit to having their content completely proxied and remixed through Facebook’s platform.  This post — Free Basics is a Nightmare on the Internet — has a very detailed breakdown of the issues with Free Basics.

For the hundreds of millions of users who join the “internet” via Free Basics, they won’t be joining the real internet, they’ll be joining “Facebooknet” — a limited, controlled version of the internet that lives inside of Facebook.  This is clearly not a charitable program offering access to millions of unconnected users, but rather a brilliantly evil user acquisition and business development strategy.

So, the question then becomes, what would be a better way to deliver internet access to the hundreds of millions of people who will be coming online in the next decade?  How can we ensure that they get connected, and also ensure that they benefit from the diversity, openness and innovation of the real internet?  How can we design access programs that are pro-consumer, pro-competition and pro-innovation?

I won’t go into all the details here, but there are a few ideas, including:

Related are the points that internet access in India is already growing very quickly without Free Basics (India grew from 300M to 400M mobile users in 2014) and that smartphone purchase is actually the most expensive part of getting online, not data access.

So, I suppose that the “network level” innovation that’s happening here is good in that it’s teasing out all the possible schemes and giving us a real close look at the details of each.  My view is that, despite its warts, T-Mobile’s Binge-On is closer to the spirit of bringing users the whole internet as quickly and cheaply as possible, while Free Basics is closer to a geniusly evil world domination scheme.