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


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  • icon
    PaulT (profile), 12 Feb 2019 @ 6:57am

    "Zero rating" is simply an excuse to obfuscate what customers are actually charging, and to give them a free competitive advantage in a way that doesn't yet fall foul of antitrust, etc. regulations (though it really should). Of course it's costing consumers more (and that's just in the ways we can measure).

    reply to this | link to this | view in chronology ]

  • icon
    Gary (profile), 12 Feb 2019 @ 7:10am

    Surprise?

    it just means "Higher rates for everyone" with a discount if it's zero-rated. Caps are artificial price increases, not congestion management tools.

    reply to this | link to this | view in chronology ]

  • identicon
    Glenn, 12 Feb 2019 @ 7:59am

    Different for wireless

    It's not anti-competitive to favor your own products in your own marketing. If you only charge for Internet traffic (because you're an ISP), then it's not inappropriate to not charge for traffic that doesn't hit the Internet. Even so, usage caps and overage fees are just out and out fraud. Screw the symptoms; attack the disease instead. But residential service isn't the same as that from wireless providers. If--for example--T-Mobile will zero-rate any service that formats its product in a particular way and applies for "zero-rating status", then isn't that just fair competition open to anyone?

    What's wrong in all of this is that ISPs have been allowed to punish customers for using their connections "too much", when it's been proven time and again that no amount of residential usage increases the costs to the ISP in order to provide that service. It's clear that what many ISPs want most is for customers to keep paying them while not using their service. Well, that ain't what business is all about (but it is what crime is all about).

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 12 Feb 2019 @ 8:59am

      Re: Different for wireless

      If--for example--T-Mobile will zero-rate any service that formats its product in a particular way and applies for "zero-rating status", then isn't that just fair competition open to anyone?

      It took me awhile (months) to understand why this is invalid reasoning. What happens in reality is not exactly this. For example, Comcast zero-rates its INFORMATION service (for which it charges separately), then turns to competitors and says "if you will pay us more money, we won't degrade your information service or impose more costs on your competitors." If competitors don't pay up (forcing them to charge their customers more), then Comcast delays adding necessary connections (thus degrading service.)

      So, for very good reasons, it is illegal, under U.S. and E.U. law, for a MONOPOLY to favor its other products.

      I should have understood this from my own experience in tech support. A company which had formerly had better-than-average support (in a niche where support was regularly necessary) decided to create "levels" of support for the most profitable ~10% of customers. The only way they could make that distinction significant was ... to significantly degrade support for all other customers. (Within a year there was a new support manager. And, even though the special-people tier died immediately, the old standards of support were never again met.) So I should have recognized the same pattern here.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 12 Feb 2019 @ 9:50am

      Re: Different for wireless

      It's not anti-competitive to favor your own products in your own marketing.

      Sure.

      If you only charge for Internet traffic (because you're an ISP), then it's not inappropriate to not charge for traffic that doesn't hit the Internet.

      But that can be anticompetitive, if other companies don't get the same arrangement. If a telco had to bid against outside parties for access to its own in-network colocation space, it would be fair.

      But residential service isn't the same as that from wireless providers.

      ...because wireless providers have gone out of their way to be second-class services from the very beginning. Per-minute fees, per-megabyte fees, higher base costs, and not being regulated as public utilities. There's no fundamental reason they couldn't choose to actually compete with wired providers.

      If--for example--T-Mobile will zero-rate any service that formats its product in a particular way and applies for "zero-rating status", then isn't that just fair competition open to anyone?

      That's a reasonable argument, but would still be an anti-consumer practice as you've said. Doing that kills the telco "traffic management" argument. If an 800kbps video stream can skip a user's cap, why not allow 800kbps of anything and skip the "special formatting" and supplication process?

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 12 Feb 2019 @ 8:21am

    Antitrust law requires proof that the market suffers from this type of conduct. If the market as a whole is fair, individual policies won't trigger an antitrust action.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 12 Feb 2019 @ 8:33am

      Re:

      Well, to be fair, the ISP market isn't fair.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 12 Feb 2019 @ 9:01am

        Re: Re:

        There are "natural monopoly" doctrines for that.

        Break up a monopoly and all you get is a cartel.

        reply to this | link to this | view in chronology ]

        • identicon
          Anonymous Coward, 12 Feb 2019 @ 9:38am

          Re: Re: Re:

          By your logic we should just do nothing and let them win.

          reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 12 Feb 2019 @ 9:53am

            Re: Re: Re: Re:

            How do you infer that? I infer a suggestion they be properly regulated as natural monopolies, using this paper (among many others) to prove market harm.

            reply to this | link to this | view in chronology ]

        • identicon
          Anonymous Coward, 12 Feb 2019 @ 9:55am

          Re: Re: Re:

          So what is your solution then?

          reply to this | link to this | view in chronology ]

        • identicon
          kallethen, 12 Feb 2019 @ 9:58am

          Re: Re: Re:

          I will actually agree with your statement. Just breaking up the monopoly won't fix the problem on it's own. The issue is that there will still be a lack of real competition. Most of the US only has one viable broadband provider, if I recall correctly. Until we can change that, the problems will continue.

          reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 12 Feb 2019 @ 10:14am

            Re: Re: Re: Re:

            Why do Americans think that competition can be introduced to deal with natural monopolies.? The last attempt just replaced a national monopoly with regional monopolies, who are busy fighting to see who can become the next national monopoly, without having to compete for customers.

            reply to this | link to this | view in chronology ]

            • identicon
              Anonymous Coward, 12 Feb 2019 @ 10:22am

              Re: Re: Re: Re: Re:

              Not all of us do.

              Some recognize that competition in some cases would be the preferable solution, but in the absence of that being an actual possibility advocate for natural monopoly regulation.

              As far as ISPs go, regulating them as natural monopolies may include local loop unbundling, allowing other ISP providers to compete with the incumbent providers over the same wires. Thus introducing competition into a natural monopoly situation.

              reply to this | link to this | view in chronology ]

              • identicon
                Anonymous Coward, 12 Feb 2019 @ 10:56am

                Re: Re: Re: Re: Re: Re:

                In other words regulation of the actual natural monopoly, and regulation to stop the ISPs from taking it over., and preferably regulations to stop the ISPs owning and content or service company; because an ISP could gain an advantage by owning say Netflix.

                reply to this | link to this | view in chronology ]

                • identicon
                  Anonymous Coward, 12 Feb 2019 @ 12:38pm

                  Re: Re: Re: Re: Re: Re: Re:

                  Why are you "in other words"ing me? I meant what I said. If we can introduce competition to a market that would be considered a natural monopoly through regulation, so much the better. This is not much different than utility style water/electric/gas regulation, though there would potentially be some differences.

                  I'm not necessarily against ISPs owning other service companies. They already do offer some services like email, antivirus, web filtering, etc... already and there are no issues there. You aren't forced to use any of their services and none of them conflict with if you want to use a completely different but comparable service.

                  Content is a slightly different story.

                  reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 12 Feb 2019 @ 9:11am

    Remember the days when AT&T was a monopoly?

    How far we've come.

    Yes, this post is sarcasm.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 12 Feb 2019 @ 11:24am

    Terrible graph

    Side note: as a statistician the graph in this article is awful and misleading. It's a shame, really, since they don't need to misrepresent the data with a misleading graph to get their point across.

    reply to this | link to this | view in chronology ]

  • identicon
    Lawrence D’Oliveiro, 12 Feb 2019 @ 2:54pm

    Straight Lines Without Data Points

    Anybody else look at that graph and immediately think “Beware! Social Science!”?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 13 Feb 2019 @ 5:09am

    zero rating

    if zero rating is so good,how come its not offered to lifeline custermor's. All zero rating is to help the isp's fight against all against throttling.If all agree to net neutraility then the zero rating will stop. It don't help anybody but the isp. If the isp's don't have the chance for zero and have to offer unlimited data, they can't make the profits the ogliopolies want for there shareholders. Like I said, why isn't it offered to lifeline customers if zero data is so great.

    reply to this | link to this | view in chronology ]

  • identicon
    Gregory Gilbert, 13 Feb 2019 @ 3:35pm

    It'll be mostly history soon

    5g and increased bandwidth will make this issue go away anyway. We don't have zero rating on our land lines because there isn't the bandwidth issues anymore.

    As far as Zero Rating costing customers more, there isn't any good controlled experiment and I don't trust the creators of these examinations. IMO market conditions and the change that comes with it will always be better than government regulation. There are just too many issues mankind refuses to examine and we are simple tribal beasts that make lots of mistakes, especially when it comes to politics.

    reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 13 Feb 2019 @ 11:02pm

      Re: It'll be mostly history soon

      "5g and increased bandwidth will make this issue go away anyway. We don't have zero rating on our land lines because there isn't the bandwidth issues anymore."

      If you genuinely believe this, you're in for a shock.

      "IMO market conditions and the change that comes with it will always be better than government regulation."

      Also, if you think government is bad, wait until you try unregulated commercial monopolies!

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Feb 2019 @ 6:09am

      Re: It'll be mostly history soon

      5g and increased bandwidth will make this issue go away anyway

      No, it really won't. Reason is because it's not about how fast or how much bandwidth is available. ISPs could have unlimited bandwidth for an unlimited amount of customers and they would still want to implement data caps, paid priority, and zero rating because it's all about how can they squeeze more money out of their customers. Not because the technology will magically fix it. There's more than enough bandwidth to go around today, yet we still have data caps and pushes for paid priority and zero rating.

      We don't have zero rating on our land lines because there isn't the bandwidth issues anymore.

      Give it time. Zero rating is a relatively newer concept.

      IMO market conditions and the change that comes with it will always be better than government regulation.

      Oh yes, because the market has worked out SO well for customer ISP options to date. Most Americans have the choice of only one ISP that can offer anything over 25/4 Mbps at less than 100 ms latency. I don't see ISPs falling all over themselves to compete with each other.

      reply to this | link to this | view in chronology ]


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