Broadband 'Zero Rating' Actually Costs Customers More, Study Finds
The concept of "zero rating"-or the process of an internet service provider exempting certain content from broadband usage caps-has been controversial for several years now. But a new study suggests that ISP claims that zero rating saves consumers money are largely nonsense, and countries where the practice is avoided see lower wireless data prices overall.
Comcast sends this on-screen popup to users who get close to eroding their usage allotments.
Many ISPs now implement caps on how much data customers can use in a month, charging you extra should you go over said limit. Data suggests these limits don't serve any real purpose outside of charging captive customers more money, and as a deterrent for users who quit an ISP's traditional TV services in favor of streaming video alternatives.
"My opinion is that caps make little technical sense, and I believe that the fundamental reason for capping is to prevent disruption of the television entertainment business model that feeds the TV screens in most households," Dane Jasper, CEO of Sonic.net, a small DSL provider based in Santa Rosa, California, said in 2016.
In more recent years, ISPs have been pushing the idea of zero rating, which involves exempting select content from these arbitrary limits. AT&T, for example, now routinely exempts its own streaming content from its usage caps, yet still penalizes users should they use a competitor like Netflix. Comcast engages in the same behavior on its cable broadband network.
The anticompetitive and free speech issues with letting ISPs determine which services get an unfair advantage on the network should be fairly obvious. But broadband providers have tried to downplay those concerns by claiming that zero rating saves consumers money, and should be seen as akin to a 1-800 number for data or the bandwidth equivalent of free shipping.
Consumers, who often don't understand that broadband usage caps are bogus cash grabs in the first place, often buy into the argument that they're getting something for free by being allowed to bypass them.
But a new multi-year study by the non-profit Epicenter.works challenges those assumptions. The study, which took a look at wireless data prices in 30 European Union nations, found that the cost of wireless data plans were notably more expensive in countries that allowed zero rating as opposed to those that have prohibited the practice.
In 2016, the European Union's Body of European Regulators of Electronic Communications (BEREC) passed net neutrality rules for all of the EU, but it's up to each individual EU country to determine how best to enforce them. Some EU member countries have specifically prohibited zero rating, while others have allowed the practice.
According to the study, EU member countries absent of zero rating saw a double digit drop in the cost of wireless data service after one year, while EU countries that embraced the practice saw wireless data prices increase.
"The existence or introduction of zero-rating offers is associated with markets which exhibit price developments that are adverse to consumers," the study found.
The reason: once ISPs begin zero rating some content, they often jack up the overall costs to access other content-in a bid to make their preferred content more attractive.
Groups like the Electronic Frontier Foundation have long complained that zero rating also distorts the market in favor of the internet's wealthiest companies. ESPN could, for example, pay AT&T to exempt its own traffic from these arbitrary limits, harming smaller competitors, educational institutions, startups, or non profits that can't afford to pay for preferred treatment.
The EFF specifically addressed such concerns ahead of AT&T's $86 billion merger with HBO, predicting that the ISP would be likely to give its own content an unfair competitive advantage on its networks via zero rating, something that quickly came true on several fronts.
"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."
While the FCC's since-discarded 2015 net neutrality rules didn't specifically ban zero rating, the rules did give the FCC leeway to act if zero rating was being implemented anti-competitively.
But the FCC acted too slowly. In late 2016 it warned both AT&T and Verizon the agency would likely be taking action against this practice, but those efforts were cut short by the election of Donald Trump and his subsequent appointment of current FCC boss Ajit Pai, who proceeded to kill net neutrality rules entirely at the behest of industry.
Pai has subsequently made it clear in statements he has no intent of policing usage caps or ISPs that use such limits anti-competitively, while parroting industry claims that zero rating is akin to "free data."
"These free-data plans have proven to be popular among consumers, particularly low-income Americans, and have enhanced competition in the wireless marketplace," Pai said. "Going forward, the FCC will not focus on denying Americans free data. Instead, we will concentrate on expanding broadband deployment and encouraging innovative service offerings."
In the years since, competition has forced some wireless carriers to bring back unlimited data plans for those willing to pay more. But even under these plans ISPs often impose arbitrary restrictions. Verizon for example now throttles all video on its network, only allowing you to view content in full HD if users pay the company an additional toll. 4K video is banned entirely.
In the wake of the federal repeal of net neutrality rules, several states have passed their own net neutrality protections. California's pending net neutrality rules only allow ISPs to zero rate content if an entire class of content is exempted from usage caps (say, video or games), but prohibits ISPs from giving specific companies (including their own) preferential treatment.
There's a chance that a current lawsuit could restore the FCC's 2015 net neutrality rules. If that doesn't happen and Congress is required to craft a new law, activists believe that a ban on anti-competitive zero rating will be integral in preventing the wealthiest content companies from buying their way to an unfair advantage.
"It's essential that when we restore net neutrality federally, that it includes a prohibition on the type of zero rating practices where an ISP is giving its own products and affiliated services preferential treatment if we want to promote affordability and an open wireless Internet market," Falcon said.