Wireless Internet service providers are beginning to offer consumers access to some content for free. In some instances, this means consumers can enjoy some promotional content, including videos and music, without impacting their data plans. These offerings, called sponsored data plans, allow consumers to stream content from such sources as HBO, Starz, ESPN, Hulu, Netflix and others to their mobile devices, or to engage with marketing, advertising and promotional content without having the resulting usage count against their monthly wireless data cap.
To be clear, these services are free to consumers. If consumers choose not to have these services, nothing changes. It’s a matter of consumer choice.
Many wireless providers are now offering these plans to consumers and this serves to differentiate their products. It’s a form of competition. Today, for example, T-Mobile is offering Binge On, AT&T is offering Sponsored Data, Verizon is trialing FreeBee Data and Virgin Mobile is offering Data-Free Steaming Music. These plans are fairly new, and business models and content offerings are still being developed. Rather than sticking consumers with additional costs for promotional content and streaming, content sponsors have willingly negotiated to cover these costs in hopes that they can increase their subscribership and potential market reach. While the competitive plans are all a little bit different, they are all free. Who would want to discourage this added competition for consumers?
Last week, 53 organizations and special interest groups wrote the Federal Communications Commission (FCC) Chairman Tom Wheeler, calling on him to halt these free services and claiming that they violate the FCC’s new net neutrality rules put in place early last year, stating “as we pass the first anniversary of the FCC’s landmark net neutrality rules, Internet service providers (ISPs) like Comcast, AT&T, Verizon, and T-Mobile are using new ‘zero-rating’ plans to undermine the spirit and the text of the rules.”
As background, it was eleven years ago when the FCC originally proposed its four net neutrality principles that focused on guaranteeing consumers the freedom to access online content, run applications, attach devices and access an array of competitive providers. What was a voluntary agreement by all major ISPs at that time has since morphed into the FCC ultimately reclassifying broadband providers as common carriers – essentially treating ISPs like 1930-style public utilities. In its overreach, net neutrality has become a means to control and tax broadband services, which in turn is beginning to negatively affect investment and innovation.
The harm from these broadband regulations has become evident in wireline based subscribership. Because telephone company (telco) broadband services now face common carrier regulations, these regulations have spawned new proceedings and new regulations involving business service and pricing contracts to rules that slow the ability of telcos to transition from legacy copper networks to innovative all “Internet protocol” fiber networks. As a result, the actual number telco wireline broadband connections have declined for an unprecedented three consecutive quarters.
Despite Congress directing the FCC to “accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans” and while the FCC justifies these regulations in order to increase competition and broadband penetration, the effect of these regulations is having the exact opposite outcome. Simply put, the FCC’s attempt to second-guess the efficiency and innovation of the broadband marketplace has been a total policy failure; and one that has harmed consumers, not helped them.
Numerous experts had predicted the massive losses in consumer benefits that would result from the onerous implementation of these regulations. That was then. Now, the move to ban sponsored data is just the latest example of that consumer harm.
Referring to sponsored data plans, the letter to the Chairman also stated, “as a result, they present a serious threat to the Open Internet: they distort competition, thwart innovation, threaten free speech, and restrict consumer choice — all harms the rules were meant to prevent.” Of course, none of this fits with facts. Wireless providers are competing for consumers with these plans and consumers have the choice to participate (and benefit) or not. Again, that choice comes with no additional costs to consumers.
There is an important concept in economics called “a Pareto improvement” – whereby total consumer welfare (think consumer benefits) always increases in a society when some consumers are made better off without others being made worse off. This is a logical and mathematical given. By that simple concept, sponsored data clearly increases consumer welfare, and those claiming to represent consumer interests or claiming that sponsored data somehow hurts consumers are being very disingenuous, or maybe representing someone other than consumers.
In a Marie Antoinette sort of way, in calling for net neutrality regulations a decade ago, one so-called consumer advocate reportedly proclaimed “let the consumer pay – it is the consumer that uses the network.” Given all of this and that fact that sponsored data unequivocally improves consumer welfare, why would so called consumer groups want to make sure that consumers pay more for their Internet experience?
Sponsored data has all upside for consumers; there is no downside. It’s that simple. FCC, hear this loud and clear – “let consumers choose and not federal bureaucrats.”
(This article was previously published in FORBES online)