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Zero rating: T-Mobile model appears most likely to meet net neutrality rules

Thursday 11 February 2016 | 13:36 CET | Background

Zero-rating and sponsored data are in the headlines these days, attracting particular attention in the US. Europe may soon see the same discussions, ahead of the entry into force of the new net neutrality legislation, which allows for some "special services" to receive different treatment. US companies are currently laying the groundwork for what all may be allowed, by experimenting with new services. This is attracting the scrutiny of regulators. T-Mobile US appears to have found a model most likely to gain the approval of regulators. 

We look below at four of the services with 'zero rating' attracting attention:

  • Facebook runs its Internet.org initiative since August 2013; more recently it's been renamed Free Basics. This is aimed at consumers in emerging markets. Data traffic for certain websites (including of course Facebook, but also for example Wikipedia) is free for end-users, thanks to partnerships with local mobile operators. Around 60 sites and apps are included. Free Basics is available in 19 countries, with around 1 billion residents.
  • T-Mobile US introduced first Music Freedom for streaming music and then Binge On for streaming video, as part of its 'Un-carrier' strategy. Neither consumers nor providers pay for data traffic to stream music and video services participating in the offer. This is a form of zero-rating, as the data traffic is 'free'. The business model is that these offers are only included with T-Mobile's more expensive subscription plans. Both programmes are open to any content provider. The company keeps the data traffic under control by limiting the video streams to 480p, which is probably enough for most smartphones and tablets. Already more than 40 video services participate in Binge On, but notably not (yet) YouTube and Vimeo.
  • Verizon Wireless has introduced FreeBee Data, a programme for content providers to to pay the data costs of consumers - a type of sponsored data. This started initially with Verizon's subsidiary AOL, as well as Hearst and GameDay. Verizon's own streaming video service, go90 (free but with advertising) is also available to Verizon's own customers without charging for data. Customers at other mobile providers of course pay for the data used for go90. The focus is on stimulating mobile usage.
  • Comcast offers since July 2015 its own OTT services Stream TV for USD 15 per month. This includes 12 channels of live TV and HBO, as well as its VOD service Streampix and DVR options. While Comcast has a monthly cap on its broadband service (300 GB), Stream does not count towards this. Comcast defends this policy (zero-rating) by noting that Stream does not run over the open internet, but over Comcast's own network.

Without explicitly naming Facebook, the Indian regulator TRAI has banned zero-rating ('differential data pricing'). Meanwhile the FCC said in an initial reaction that Binge On was OK. A study by Stanford University however concludes that Binge On from T-Mobile US is probably illegal under the American net neutrality regulations, but it will be up to the FCC to make a ruling. We note already a few dubious elements:

  • T-Mobile and Verizon make their services open to any content providers, which seems to guarantee non-discrimination. However, YouTube for example is not participating, probably because of the reduced quality on T-Mobile's video service. The Stanford study notes also that the broadcast apps Meerkat and Periscope (Twitter) don't participate, while Ustream does.
  • Furthermore, the Verizon service requires payment. While this is not a problem for the big streaming providers, smaller players may be left behind and put at a competitive disadvantage.
  • Facebook's service includes a very limited selection of apps. This is also a form of discrimination against other, smaller players.
  • Verizon and Comcast, in contrast to T-Mobile US, have a potential conflict of interest, as they also offer their own streaming video services.
  • Comcast's argument is more difficult. Comcast claims that it should be considered a managed service, but that raises the following question: are data caps, which don't affect managed services but do impact OTT services, then a form of violating net neutrality rules?

So zero-rating raises a number of issues and concerns. Even without the conflict of interest for operators that are also content providers, there is the problem of discrimination, especially if the video providers have to sponsor the data, like at Verizon. Only T-Mobile US's service appears to have a good chance of prevailing at the FCC, especially if it manages to get YouTube and Vimeo on board.



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