Most mobile phone customers pay a monthly bill containing taxes, plus a flat charge for the “line” and other charges based on the count of data bits we send or receive. The usage sensitive charge apportions the cost of operating the cellular network and pays a contribution to the needed capital investment, e.g. cell towers, spectrum, backbones and router equipment needed for a high quality cellular network.
Our reliance on mobile service has become pervasive as evidenced by the more than 355 million mobile phones in service throughout the USA. Most consumers can choose from several nationwide mobile operators and local operators (e.g. Cricket or Boost).
In any area, a typical half dozen competitors help keep prices in line. But prices are also driven by a steady increase in network speed and applications that consumers have grown to regard as mandatory, such as Internet access, messaging, cloud backup storage, and video service. For many groups, mobile cellular service has become an essential tool for communicating among parents and children and among employees and their customers. To better follow the contours of customer needs, mobile competitors offer a clutch of pricing plans that adapt to different users’ circumstances.
Family plans overlay consumer needs into multi-line and shared data packages. For the consumer family, it is the comparison of pocketbook impacts among competitors’ plans that the family uses to pick among wireless carriers.
Mobile cellular operators will undertake technical measures to outperform their competitors. That might include introducing 4th or (soon) 5th generation service into areas. The also compete for market share by offering new and free benefits to their customers who subscribe to wireless plans.
Mobile operators can collaborate with content providers to develop delivery of differentiated service offerings that are more efficient and economizing of customer data usage. Specifically, news wireless offerings, called zero-rating arrangements, are being offered by mobile carriers who work with content providers. These arrangements, also known as sponsored data plans, provide consumers with clear benefits, because they give consumers access to promotional content, video and music streams without adding usage charges to consumer data caps. And, it is free and totally optional for consumers. In no case are consumers (those subscribing or not subscribing) made worse off by these free arrangements.
Now the Federal Communications Commission (FCC) seems concerned that these tactics may violate the “open” Internet, because not all content providers will want to participate with wireless providers to offer these “free data” plans. It is unclear how negatively the FCC would regard an ISP working with content providers to provide differentiated services that unequivocally benefit consumers.
In terms of regulatory concerns, a competent study of the economics of zero rating found “concerns that Zero Rating could serve as a means of foreclosing competition, or limit freedom of expression, appear misplaced and lacking both theoretical and empirical support.” So, there is little market risk to allowing wireless carriers to use these services in competition with one another.
More importantly, what do consumers think? I newly released Harris Poll survey finds that 94% of Millennials (those aged 18 to 34 years old) would likely try these sponsored data plans if the data usage were free, and why not? You are giving consumers access to content, such as video content from HBO and ESPN, without affecting caps on their data plan. Again, some consumers are clearly being made better off by these plans, and no customer is made worse off. It is a clear benefit to heightening competition.
Regulators’ positions may be uncertain, but the market seems ready for zero-rating and consumers will certainly embrace the lower charges. Let’s just hope regulators don’t get involved and do something that will reduce consumer benefits.