Chairman Wheeler of the Federal Communications Commission (FCC) directed the Wireless Telecommunications Bureau (WTB) to issue a report on zero-rating and sponsored data plans offered by various wireless providers. The report affirms that zero-rating plans are both popular and good for consumers. The report then criticizes specific sponsored data plans that have launched. What is most worthy of amazement is the process by which the report arrived at the conclusions about sponsored data plans.
The report offers no evidence that any of the current sponsored data plans cause any harm to competitors. Indeed, the report offers no data or evidence at all, an absence that is remarkable for an agency that claims to be data-driven. The report raises hypothetical concerns about ways in which sponsored data plans might be used in an anti-competitive way. The report speculates, but provides no indication of actual harm.
As the report explains, T-Mobile, AT&T, and Verizon Wireless are all offering consumers the chance to get some wireless data for free. In T-Mobile’s case, the price of participating in the offering to the content provider is zero. In the other two cases, there is a non-zero price, which AT&T and Verizon each claim is the same for all external providers and for affiliates of the wireless carrier itself. The report does not present any evidence that shows that the prices charged internally and externally are different. It presents no facts at all about either cost or price, aside from T-Mobile’s zero-price.
Instead, the report argues that payments between a vertically integrated company’s divisions don’t count. Any payment by AT&T’s DTV operation to AT&T’s wireless network or by Verizon’s Free Bee to Verizon’s wireless network is irrelevant. According to this novel and bizarre argument, only cash payments by unaffiliated parties are real payments that represent real costs to the payer.
That, of course, ignores the actual cost of carrying traffic—regardless of its source — to AT&T Wireless and Verizon Wireless or, for that matter, T-Mobile. Most importantly, it leads to the conclusion that a network can only permit sponsored data plans if its price to unaffiliated content providers is zero, regardless of actual cost. Indeed, the report makes it clear that the primary reason it blesses T-Mobile’s Binge-On offering is that its price is zero.
Even in the heyday of network unbundling, when incumbent wireline networks were compelled to share network elements with competitors at regulated prices, they were not required to price those elements at zero. Federal and state regulators based the prices on calculations of cost that included cost of capital, i.e. profit. This report admits that there is a cost to carrying traffic, but makes no attempt to calculate the actual cost to each network or to determine a just and reasonable price. It just insinuates that zero is the only acceptable price.
A zero price offered by a wireless carrier to content providers, of course, raises interesting legal questions. While it is certainly favorable to the content providers who benefit from it, it may squeeze the wireless competitors of the carrier who is offering it. If forced on carriers by regulators, it may be confiscatory. The report never discusses those issues.
It also never contemplates the conditions under which zero-pricing is financially feasible. For example, T-Mobile has explained to analysts on many occasions that it can afford to zero-price because it throttles traffic. Were the FCC to enforce more strictly its bright-line rule against throttling, T-Mobile’s costs would go up. This report is not just lacking in evidence, it doesn’t even scrape the surface of the relevant legal, technological, financial, and economic issues. For good reasons, this is merely a report from an FCC bureau, written at the behest of a departing Chairman, with no legally binding effect.
On January 20, the composition of the FCC will change. The new majority will have the opportunity to change FCC processes from recent practice. It should promptly demonstrate that its actions are based on solid evidence and careful reasoning and take into account the views of all commissioners. The assurance of well-reasoned and well-founded actions will encourage innovation and investment in wireless networks specifically and in the Internet ecosystem more broadly.
Anna-Maria Kovacs, Ph.D., CFA, is a Visiting Senior Policy Scholar at the Georgetown Center for Business and Public Policy. She has covered the communications industry for more than three decades as a financial analyst and consultant.
Filed Under: Industry regulations + certifications