Zero-Rate Plans Rain on Net Neutrality
We haven’t had a lot of snow in Manhattan this year. Last Thursday’s dump was a welcome exception. Most of what has fallen out of the sky this winter has been plain old rain. So we’ve seen a lot of those folks who spring up on street corners selling umbrellas for $10. Their product is cheap; you probably own a better one. But if you left yours is at home, you pay the sawbuck and stay dry. Payday loans are also for a rainy day; and staying dry is why there’s a market for them.
Rainy days happen and you can’t always stay indoors until the weather clears. No one thinks a payday loan is a great deal, but sometimes it’s the only way to get out of a jam. But most likely to be in that jam are people who are struggling to begin with, so these businesses take money from those who have the least of it to spare. The same people are the ones who buy zero rate data plans. They don’t have the resources to buy more than they need at the moment, and they will accept some sacrifices to get what will sustain them today.
Opponents of payday loans call their purveyors predatory, citing annualized interest rates of 400%; but that’s a little misleading since, like the interest on your credit card, the money isn’t supposed to be repaid in that timeframe. Such short terms and small amounts impose a large expense ratio. That said, profitability depends on some of their customers getting sucked into a spiral of refinancing from one payday to the next, taking months or more to erase the original debt. For those frantic souls, the usurious rate has true relevance. So it’s not unfair to say Money Mart, Check City and their ilk, while offering a legitimate and valuable service, are nonetheless profiting off of the poor and powerless when they’re at their most desperate.
Mobile data providers like Verizon and AT&T have a market like Money Mart’s. For a relatively modest monthly fee, these carriers provide service to your cell phone with a low cap on the digital bandwidth – where the “zero rate” part comes from the sites and services that they’ll let you use without charging the attendant digital traffic against your cap. These are their own services or those of partners who have paid for the access. T-Mobile offers a Binge On plan for streaming music and video; AT&T includes streaming of DirecTV Now; and Verizon offers the NFL Mobile app. Customers of these popular plans can use these services without worrying about piercing their cap.
For a while it looked like the FCC was going to take issue with these plans, saying they violated the principles of net neutrality (see an earlier post for more about that), a principle affirmed in their February 2015 ruling. The ruling still stands, but there’s a loophole in which the FCC may provide exemptions if deemed necessary to ensure “[a]ll charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable…” The new administration seems inclined to view what is just and reasonable rather differently than the old one did. Whereas the FCC called them out explicitly just a few days before the inauguration last month, saying they “may obstruct competition and harm consumers…” Those concerns evaporated a few weeks later when the new FCC chair, Ajit Pai, announced he would not be pursuing the investigations his predecessor had initiated.
The industry argues zero rate plans are like an 800 number because the provider instead of the customer is paying the communications cost. Pai said that to proscribe these offerings would be denying Americans free data, and even before his arrival the FCC never said that the plans per se violate rules on net neutrality. The Electronic Frontier Foundation itself doesn’t take a black-and-white view. Like the payday loans, zero rate plans offer a specific service to people who might otherwise have to do without. If we accept that there can and should be a market for payday loans, it’s hard to argue that we shouldn’t let the big mobile providers offer zero rate plans.
All the same, there’s a cost to be paid and, like the payday loans, it’s being paid by those who can least afford it. Users are driven to consume the content that is part of the plan. This effectively narrows the sites and services available to them. Competition in the marketplace of those services is reduced because customers are effectively constrained in what they can use their plan for. And because the available services either belong to the carriers or pay for the partnership, they increase barriers to entry for internet businesses who aren’t able to join that club.
More troubling than the affect on the market is the social cost. Concerns about the “digital divide,” the gap between those with ready access to the internet and those without, predate mobile phones. Today digital literacy and access to electronic resources are recognized as foundations for academic success, hence essential for advancement. The ubiquity of smartphones was hailed as helping to close the gap, since they make computers and internet access far more affordable than do PCs and laptops. By inhibiting people’s travels across the internet, zero rate plans hold open the digital divide. If you can watch football for free but have to pay to go to the Khan Academy or WolframAlpha, you’re more likely to watch the game.
Zero rate plans may keep customers who are out in the rain from getting wet but they don’t help move anyone indoors. Although good business for the few, they are hostile to competition, raise barriers to entry for smaller internet businesses, and inhibit social mobility. These are a few of the things that the principle of net neutrality was designed to combat. There may be times when the government should ignore that principle to honor a higher one; but this isn’t such a time. Undermining net neutrality to permit the market’s gorillas to offer “free data” for football is bad public policy.
« Better Living Through Artificial Intelligence: Applications That Can’t Come Too Soon New Addresses for the Whole World – An Elegant Idea in Three Words »
