Advocates of net neutrality, which is under active assault by the conservative chairman of the Federal Communications Commission, have been pointing to a vivid example of how abandoning the principle will allow internet providers to manipulate their offerings at the expense of consumers.
The example comes from Portugal, where the rule change advocated by FCC Chairman Ajit Pai is in full cry. It provides an instructive look at how internet service providers can steer users to favored websites and services, including their own. And it’s a warning about the consequences of Pai’s proposal.
Net neutrality means that all websites and services have identical access to internet users. ISPs such as cable broadband or wireless providers can’t block some sites or services or deliberately slow down their data as they make their way to users, and can’t demand payment to prioritize one firm’s service over a rival.
Whether you get your streaming video from Netflix or Amazon Prime, you should get it at the same speed and quality. As President Obama explained the principle in 2014, “No service should be stuck in a 'slow lane' because it does not pay a fee.” The FCC, under Obama-appointed Chairman Tom Wheeler, established those rules in 2015. Pai is intent on repealing them.
That brings us to Portugal, whose internet system was highlighted by Rep. Ro Khanna (D-Fremont) in an Oct. 26 tweet that promptly went viral.
Khanna’s tweet displayed the mobile internet service offerings from the Portuguese telecommunications company MEO. After paying a fee for basic service, subscribers can add any of five further options for about $6 per month, allowing an additional 10GB data allotment for the apps within the options: a “messaging” tier, which covers such services as instant messaging, Apple FaceTime, and Skype; “social,” with liberal access to Facebook, Instagram, Twitter, Snapchat, and so on; “video” (youTube, Netflix, etc.); “email and cloud” (Gmail, Apple’s iCloud); or “music” (Spotify, Pandora).
In Britain, the internet service provider Vodaphone charges about $33 a month for basic service but offers several “passes” allowing unlimited video or music streaming, social media usage, or chat, at additional tariffs of up to $9.30 per month.
These arrangements are allowed under provisions giving national regulators some flexibility. These regulators can open loopholes permitting “zero-rating,” through which ISPs can exclude certain services from data caps. That’s what the Portuguese and British ISPs essentially are doing.
The potential for abuse is obvious: The system gives ISPs the ability to set terms for any service’s inclusion in one of these special tiers. EU regulators have said they’ll be on the lookout for arrangements that disadvantage consumers, but will look at them on a case-by-case basis.
As it happens, that’s precisely the loophole that has existed in the U.S. market under the FCC’s vaunted net neutrality rule of 2015. At that time, the commission also said it would review zero-rating and other such arrangements on a case-by-case basis, but only after ISPs implemented them.
How has that worked? Lousily.
In early January, the FCC staff, in one of its last published reports before President Trump appointed Pai as chairman, concluded that zero-rating deals offered to broadband customers by AT&T and Verizon violate net neutrality principles. The deals “present significant risks to consumers and competition… because of network operators’ potentially unreasonable discrimination in favor of their own affiliates,” the staff reported.
“Absent effective oversight, these practices will become more widespread in the future,” the staff added.
This was hardly a novel perception. Consumer advocates had howled in dismay when the FCC left the loophole open in 2015. “Zero-rating is pernicious; it’s dangerous; it’s malignant...,” argued telecommunications expert Susan Crawford of Harvard. “We should outlaw it. Immediately. Unless it’s stopped, it’s not going to go away.”
The arrangements that offended the FCC staff were AT&T’s “sponsored data” and Verizon’s “FreeBee Data 360.” AT&T, according to the FCC staff, gives content providers the ability — for a fee — to offer programming to its subscribers without its counting toward the subscribers’ monthly data usage limits. The problem is that AT&T offers this service to programmers at terms worse than those it gives DirecTV, which it owns. As a result, the deal is likely to “obstruct competition for video programming services” by making DirecTV seem cheaper than such rivals as Netflix, Amazon Prime or Hulu.
Verizon pulled the same stunt to favor its own go90 video service, the FCC staff found. Because Verizon’s service was just rolling out, this wasn’t as much of a concern to the staff as AT&T’s favoring DirecTV. But “there is the same potential for discriminatory conduct in favor of affiliated services.”
The staff didn’t mention another pernicious effect of zero-rating: It seriously disadvantages start-up services that need an open internet to grow into serious competitors to incumbent content providers. Whatever fees AT&T and Verizon charge for zero-rating certain services, established companies such as Netflix, Amazon and Google-owned YouTube almost certainly can and will pay them. But fledgling services very likely will find themselves outside the club.
Plainly, whatever regulatory actions the Obama-era FCC might have taken in response to the staff study are off the table under Pai. But the danger is even greater under a deregulatory environment in which content providers are permitted to affiliate with content distributors. It’s true that the Trump administration has moved to block the merger of AT&T and Time Warner, which would unite one of the nation’s largest ISPs with one of its most significant content providers. But there are indications that Trump’s Justice Department has taken that step for personal reasons, rather than as a reflection of sound antitrust principles — Trump doesn’t like the coverage he receives from Time Warner-owned CNN. Those considerations could undermine the department’s case in court.