Zero-rating and Network Favoritism: the beginning of the end of Network Neutrality

Zero-rating and Network Favoritism: the beginning of the end of Network Neutrality
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The relationship between content providers like Disney and ISPs like Verizon will change significantly in a post-Network Neutral world. But will there be more competition?

Network Neutrality and the problem of zero-rating

Anyone note the explosion of advertising for free access to content like Spotify or Netflix? This T-Mobile ad samples TV so much could be mistaken for a Netflix promotion. But if we look past the smiling shots of our favorite TV characters high-fiving, we see the first signs of what life on the web will be like after Network Neutrality.

It is no coincidence we see these offers in the wake of weakened Network Neutrality principles.┬áThis practice, “zero-rating,” is a clear example of what NN advocates have feared. Zero rating is the practice of creating partnerships with content providers like Netflix and making access to content from certain providers cheaper. In short, those who control the network discriminating in terms of the content flowing through their “pipes.” In short, not everyone is treated equally.

How is this anti-competitive? Imagine we want to launch a music service to compete with Spotify. We have a good tech team that worked hard developing a friendlier user interface and faster file access for the consumer. Spotify’s deal with T-Mobile means a start-up music service, regardless of our app’s superiority, will likely fail. Why? Market advantage.

  1. Access to customers. Spotify will have a guaranteed user base in T-Moblie’s subscribers. Big user bases attract revenue from venture capital and new media investors of the Silicon Valley sort.
  2. Advertiser appeal. A high number of users (high traffic) will mean increased interest from advertisers, another revenue stream.
  3. Data sales. High traffic also provides user data. User data is valuable to marketing firms and several new industries that lurk in the shadowy world of data brokers (one broker offering a “Rape Sufferers List” for targeted marketing).

All of these factors add up to tall barriers to entry for competitors. By preferring Spotify’s content over others, network owners will effectively pick and choose winners. And what is the likelihood that T-Mobile will allow a Spotify competitor to use its network?

This glimpse of a post-Network Neutral internet shows how anti-competitive the legal environment can become and sharply contrasts with the early (network-neutral) internet that allowed a young Netflix to challenge cable providers. Even seemingly innocuous Netflix package deals are harbingers of a less competitive industry in which consumers and startups ultimately lose.

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Despite the upbeat Netflix vignettes, these are not friendly giants. Zero-rating is a first stage of dramatic changes in store for a post-NN world. Favoring one company over another is not neutral because it gives some companies disproportionate access to consumers. Network Favoritism dampens the drive to innovate and improve customer services. By removing competition, there is no reason to improve. Without Network Neutrality, we risk more concentration in ownership and the development of distribution-content trusts. These trusts are more likely to stifle innovation than ISPs suffering from market disadvantage or lacking “efficiency.”

Comcast’s position on NN is contorted. As T.C. Sottok noted in The Verge, Comcast does not have a coherent position on NN policy. It goes something like: “We respect and abide by NN principles and that is why we want them removed.” If a company appreciates NN, why remove the rules?

Public relations speak has made Comcast’s position nonsense, but policymakers have maps for navigating these waters. Nineteenth century Americans fought the Standard Oil monopoly because trusts and monopoly violated American ideas of capitalism. Concentration led to market dysfunction and harmed the economy at large. Early in the 20th century, AT&T had bought up most of the nation’s phone networks but accepted substantial government regulation in exchange for becoming the nation’s sole telephone company. AT&T owned all the market and Americans had public interest (9-1-1, fair rates, equal access) hardwired into US telecommunications system.

Standard Oil’s J D Rockefeller was a strict, church-going man. Reporters of the era noted that he taught Bible school on Sundays, but, by Monday, he was as ruthless a business mogul as the Gilded Age could produce. Disney may have the veneer of progressive ice princesses and dancing tea sets, but the media business is, well, business.

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