Facebook and several other Western companies tried to give away free Internet in India, but regulators wouldn't allow it. The trouble is that the service provided free access to some online apps---including Facebook---but not others. This is called zero-rating, and regulators believe it harms online competition, giving certain companies an unfair advantage over others.
Meanwhile, here in the US, zero-rating has taken another form, with various internet service providers exempting certain video apps from their data caps. T-mobiles does this with a service called Binge On, letting its subscribers watch unlimited amounts of video from apps like YouTube and Netflix, while throttling their connections if they exceed data caps with other apps. So far, despite complaints from various public advocates, US regulators have just let this happen. But the issue may soon come to a head, now that AT&T, one of the world's biggest ISPs, has signed an $85.4 billion agreement to acquire Time Warner, one of the world's biggest media companies.
Like T-mobiles and other American ISPs, AT&T exempts certain content from its data caps. In fact, just last week, it took another step in this direction, strongly implying that its DirecTV Now internet television service, due next month, will be zero-rated. That's good news if you're an AT&T customer---at least in the short-term. But if AT&T closes its deal with Time Warner, acquiring a company that owns some of the world's most popular content makers, including HBO, CNN, TNT, TBS, Warner Brothers, and various live sporting events, the company's zero-rating practices pack enough punch to have an impact on access to content not only on AT&T's network but other networks. "The AT&T-Time Warner merger really pulls [zero-rating] into crystal clear focus," says Matt Wood, policy director of the DC-based public interest group Free Press. “Zero rating Time Warner content is a very likely outcome here."
The overarching problem here is that widespread zero-rating harms innovation. It prevents newer and smaller players from challenging the established companies, and that's particularly true when those established companies start consolidating and getting even bigger. And companies of a certain size can have an influence on the rest of the playing field---as the Justice Department seeks to show with a new lawsuit against none other than DirecTV, accusing the company of colluding with other pay-TV companies to block content (before its merger with AT&T). Among public advocates, the hope is that regulators will bar a combined AT&T-Time Warner from practicing zero-rating, but that's not enough. The bigger hope is that the AT&T deal leads to stiffer rules for the entire industry---a firm declaration that zero-rating harms competition wherever it's practiced.
AT&T owns the satellite television company DirecTV, and if you're a DirecTV subscriber, the company already zero-rates any DirecTV content you watch over AT&T's mobiles internet service. With DirecTV Now---a television service offered solely over the internet---AT&T is merely extending the practice. Last week, at a tech conference in Southern California, AT&T CEO Randall Stephenson said that DirecTV Now's $35-a-month price tag "includes your mobiles streaming costs."
But the stakes are much higher if AT&T closes its deal to acquire Time Warner---simply because the ISP could zero-rate so much of television's premium content. Think of it this way: Time Warner owns HBO, and HBO produces hit shows like Game of Thrones. If people can watch Game of Thrones for less money or less hassle on AT&T, they're going to choose AT&T. And once they're on AT&T, they less likely to watch competing shows that aren't zero rated. "The world will change if it’s Game of Thrones,” says Ernesto Falcon, legislative counsel at non-profit digital rights group Electronic Frontier Foundation. "We've never seen such premium content fall within a giant wireless company."
Sure, other telecoms can battle back with their own zero-rating. But what about a company like Netflix, which, unlike Time Warner, doesn't have a telecom overlord watching out for its interests? Yes, AT&T allows outside companies to zero-rate their content its networks too---but they must pay a fee. Essentially, the company is saying: OK, if you want to benefit from our sponsored data, pay us. In the end, this puts smaller players at a disadvantage, just because their pockets aren't as deep, and it turns AT&T into an internet gatekeeper. Netflix is big enough to pay the fees and fight the political battles required to get past this gate. But what about even smaller players? What about the newest innovation? AT&T says the merger will be good for innovation and that Time Warner content will be “widely distributed.” But all this is talk--not a guarantee.
Many people argue that zero-rating violates net neutrality---the notion that all internet traffic should be treated equally. But while the FCC has acknowledged that zero-rating "could violate the spirit of net neutrality," it still reserves the right to review service provider practices on a case-by-case basis. The agency hasn't laid down specific rules against the practice.
When Comcast acquired NBC Universal, regulators prohibited the combined company "from excluding its own services from data caps or metering" and required the company "to count traffic from competing online video services the same as its own." Then Comcast zero-rated its Stream TV service, arguing that the condition didn't apply because Stream TV was a television service, not an internet service.
The AT&T-Time Warner deal could finally provide the impetus needed to lay down these rules. The world has changed a lot since the Comcast-NBC merger, and this new deal provides an opportunity for regulators to explore the problem in full. This includes not just zero-rating on its own, but how it also dovetails with so many other questionable practices. John Bergmayer, a senior staff attorney at another public advocate group, Public Knowledge, worries that if the merger goes through, AT&T will not only zero-rate its own content, but limit how much of this content winds up on rival internet services---and limit how much rival content is available on its internet service. "It can use content as a sword against its rival wireless and cable companies," he says of AT&T, "and it can also use its distribution platform as a sword over rival content providers." AT&T's plan to zero-rate its own internet video service from the start can be read as a sign of how self-interested the company already is. What will stop it from going all out in creating other advantages for itself?
Certainly, regulators---either the FCC or the Department of Justice---must place strong conditions on the AT&T-Time Warner deal. But that's not enough. What we really want is a world where all content is available on all networks---and treated equally on all networks. It's not just enough to put conditions on AT&T---or Comcast. The same rules must apply to everyone. And they must be strong.
