Open internet campaigners are up in arms over the EU's recent vote to allow zero rating, but is it really the risk to net neutrality they might think?
As of last month, there's been a fierce debate underway in the telecoms industry around the practice of telcos and their partners subsidising customers' mobile data on a service-by-service basis.
It's called zero rating, and it's already an established pricing model in many markets. The likes of Google, Facebook and Wikipedia, for example, have all struck up partnerships with mobile operators in developing countries to offer stripped-down versions of their services free of charge, extending their reach to customers for whom metered data would otherwise be a barrier.
Now, though, the conversation has turned to the possibility of zero rating entering the mobile mainstream in more mature markets, and Europe in particular. The trigger was the EU's October 27th vote in favour of new telecoms rules to allow the practice - an outcome that has ruffled the feathers of more than a few open internet campaigners.
This is because zero rating is widely considered, in no uncertain terms, to undermine net neutrality. Here's what Mozilla Foundation chair Mitchell Baker has to say on the issue: "Selective zero rating is unquestionably bad… It preselects what's available, directing people to where others want them to go. It is bad for economic inclusion. It is bad for the ability of new entrepreneurs to grow onto the global scale. It is bad for the long-term health of the internet."
The basic argument here is that zero rating hurts competition and consumer choice because it creates walled gardens, essentially putting a tax on the portions of the internet that aren't zero rated at the discretion of telcos and their partners.
However, while this holds some water, my belief is that zero rating is a good thing for the telco, for the consumer, and for innovation and growth in general. And there are plenty of articulate voices to support this.
The economic implications of zero rating
Firstly, consider this report from Nera Economic Consulting, which examines at length the economic implications of zero rating and concludes that concerns over competition and consumer choice are "misplaced and lacking both theoretical and empirical support".
According to study author Jeffrey A Eisenbach, most of these fears are rooted in a misunderstanding of how IT markets operate: most, for example, hinge around common platforms and pairings of complementary products, such as Samsung's smartphones and Google's Android OS. Both products gain value from their compatibility, and this value increases with their number of users. It's really no different when a telco bundles connectivity with apps and other services, and the model isn't particularly suited to restrictive exclusivity arrangements.
Moreover, there's the innovation angle. Dr Eisenbach claims that offering discounts to marginalised customers, who would otherwise be unwilling or unable to pay for connectivity, is an important way for telcos to demonstrate innovation and therefore compete on the basis of product differentiation rather than price. And this, of course, is a more sustainable route for the telecoms industry than one in which operators essentially become utility providers.
IT markets like telecoms are dynamic, Dr Eisenbach writes, so the ability of a participant to offer new and improved products "plays at least as significant a role in its success ... as the ability to produce and sell existing products at lower prices". For too long, telcos have relied on the latter, resulting in a downward spiral of price reductions; zero rating with complementary products may be an escape route, giving them the opportunity to create more value for more customers.
It's important here to note that the Nera report is sponsored by Internet.org, which is Facebook by any other name and a key proponent of zero rating in the current telecoms landscape. Nonetheless, we can find evidence in favour of the practice from other sources, too.
How zero rating affects the consumer
Let's look at the consumer choice implications, for example. Last month, the Alliance for Affordable Internet (A4AI) published research on the impact of zero-rated plans in the developing countries where the pricing model is common - surely the best possible barometer of whether it actually benefits customers.
This found that zero rated plans are not as widespread in Asia, Africa and Central and South America as some headlines suggest. In fact, they only made up 13 per cent of all mobile subscriptions across the eight countries A4AI studied. Consumers are evidently still exercising choice, so it's not strictly true - to use Mr Baker's turn of phrase - that access to the internet under zero rating is "predetermined by those entities with financial power".
There's also no evidence that zero rating influences consumer browsing behaviour. In fact, it may actually be a better way to serve customers who wouldn't otherwise use the internet, and would struggle to understand concepts like bill shock, than even its most ardent champions realise: a raft of studies have shown that millions of Facebook users in Asia and Africa have no idea they're using the internet, for example.
In summary: zero rating is an opportunity for operators to promote diversity and inclusivity in their offerings, not exclusivity; it doesn't drive other pricing models out of the market; and it doesn't stop people from using the services of their choice so much as render those services more accessible.
Other reasons to zero rate
As a final aside, it's worth pointing out that zero rating has other uses, too - it's not just for covering the cost of data for access to already-free services like Google and Facebook. As Disruptive Analysis' Dean Bubley points out here, many telcos zero rate access to their billing portals and online help functions, and any attempt to do otherwise "would get criticised by every consumer activist".
I also wrote in a previous blog about the possibility of zero rating ads. Ads consume a phenomenal amount of bandwidth, which - given their intrusive nature - is profoundly unfair for the consumer. If a telco or advertiser were to absorb the cost of this bandwidth, they'd actually be using zero rating to make their customers' metered data go further.
It's difficult to put together a compelling argument that consumers are disadvantaged by zero rating, whatever form it takes. We do, however, know that some of them benefit massively from the practice, and that the EU vote presents telcos with a major opportunity to differentiate their services and create revenue.