Zero-rating

Zero-rating (also called toll-free data or sponsored data) is the practice of mobile network operators (MNO), mobile virtual network operators (MVNO), and Internet service providers (ISP) not to charge end customers for data used by specific applications or internet services through their network, in limited or metered data plans.^{[1][2][3][4][5][6]} It allows customers to use provider-selected content sources or data services like an app store,^[7] without worrying about bill shocks, which could otherwise occur if the same data was normally charged according to their data plans and volume caps. This has especially become an option to market 4G networks, but has also been used in the past for SMS or other content services.

In combination with zero-rating some services, MNOs are typically setting relatively low volume caps for open internet traffic or conversely, over-pricing open internet data volumes.^[8] Choosing to zero-rate existing third-party services trending among an attractive audience for the mobile network operator allows the MNO to increase or defend its market share for the target segment.^[9] This price discrimination works also in favour of the chosen third party service.

Building their own services and delivering them at a zero-rate if bundled with their mobile contracts has also been a common practice among mobile operators. In this scenario, network operators can optimize their service together with their network to deliver an optimal service. Together with the existing billing relationship, this can be an important factor to compete with third party services or take control over volume-heavy services.^[10]

Existing programs

Internet services like Facebook, Wikipedia and Google have built special programs to use zero-rating as means to provide their service more broadly into developing markets.^[11] The benefit for these new customers, who will mostly have to rely on mobile networks to connect to the Internet, would be a subsidised access to services from these service providers. The results of these efforts have been mixed, with adoption in a number of markets, sometimes overestimated expectations and perceived lack of benefits for mobile network operators.^[12] In Chile, the national telecom regulator ruled that this practice violated net neutrality laws and had to end by June 1, 2014.^[13][14] The FCC did not ban zero-rating programs, but it "acknowledged that they could violate the spirit of net neutrality."^[15]

Since June 2014, U.S. mobile provider T-Mobile US has offered zero-rated access to participating music streaming services to its mobile internet customers.^[16] In November 2015, they expanded zero-rated access to video streaming services.^[17] In January 2016, Verizon joined AT&T by creating its own sponsored data program, FreeBee Data, which "enables content providers to pay a wireless provider to allow its subscribers to engage with or consume a piece of content without it counting against the customers' monthly allotments."^[18] Sponsored data on behalf of content providers through AT&T or Verizon covers the costs for the viewers and attracts more consumers. In other words, ISPs have created a 1-800 service for online users.

Advocates of net neutrality state that sponsored data "allows well-heeled content providers to pay for placement to the disadvantage of smaller companies that can't afford the same luxury."^[19] Verizon's FreeBee Data program which allows its own customers to access certain content, like ESPN and its video streaming service, for free along with any other relevant app access and the data will not count against their monthly caps. In this way, big ISPs discriminate against data and content from those who do not pay to have their content included in the FreeBee or other sponsored programs.

Similarly mobile network operators are also able to use the underlying classification technology like deep packet inspection to redirect enterprise related data charges for employees using their private tablets or smart phones to their employer.^[1] This has the benefit of allowing employees to participate in bring your own device (BYOD) programs.

Toll-free / zero-rated applications

Another proposed method of providing subsidized data (partially or completely free) is to have the app itself track the data it consumes on the subject device (e.g., mobile phone, laptop) and report back to the carrier and the app provider the bandwidth consumed for purposes of effecting the zero-rating. An advantage of this approach is that the bandwidth management logic (the operational rules) can be easily deployed, amended, and updated via well-established app stores (e.g., iOS, Google Play) without significantly burdening the carrier network operations (e.g., BSS/OSS).

The apps themselves can be configured to be autonomous and enforce their own rules in real-time without seeking pre-download permissions from a third party, network control device, or analogous external element. This means that the app itself can turn on or off the data subsidy, change its physical appearance to transparently convey the level of subsidy to the end-user, or take other actions as the circumstances of time, place, use case, or otherwise dictate. These are all as set forth by the bandwidth subsidizer (the app provider) at the time the app is created and deployed. Further, given the autonomous nature of this "app-centric" approach to providing and managing subsidized bandwidth, toll-free application technology can also be created, maintained, and operated in a virtualized environment (e.g., for toll-free app integration simplification).

The resulting "swarm" of constantly evolving toll-free apps can naturally (via free market response to dynamically changing demand levels) encourage bandwidth use at optimal times (e.g., off-peak vs. peak), which not only lowers the bandwidth cost to consumers and content providers, but also improves the performance of the carrier network's existing infrastructure (lower power, faster speeds during peak times, reduced errors).

It is also worth noting that an "app-centric" approach to provisioning free or subsidized data appears consistent with core principles of Net Neutrality. Specifically, Professor Tim Wu's^[20] assertion that “. . . innovation theory is embodied in the “end-to-end” design argument, which in essence suggests that networks should be neutral as among applications. As network theorist Jerome Saltzer puts it: “The End-to-End argument says "Don't force any service, feature, or restriction on the customer; his application knows best what features it needs, and whether or not to provide those features itself" . . . The Internet Protocol suite (IP) was designed to follow the end-to-end principle, and is famously indifferent both to the physical communications medium “below” it, and the applications running “above” it . . .” Professor Wu goes further by stating that ". . . the basic principle behind a network anti-discrimination regime is to give users the right to use non-harmful network attachments or applications, and give innovators the corresponding freedom to supply them".

Lastly, the app-centric solution likely obviates the need for DPI (avoiding privacy concerns) and is well-suited to being deployed across various carrier networks simultaneously (a shared "carrier-agnostic" platform) which eases the adoption of toll-free activities by bandwidth subsidy providers (e.g. the app providers, who are either content providers, merchants, service providers, or government agencies). For technical descriptions of the method, see related PCT (India and EU) & U.S. patent filings, as well as December 2016 full China patent grant (e.g., Application Activity System USPTO 20120036051 & 20140337114, T. Sachson).^[21]

Reception and impact

Zero-rating certain services, fast lanes and sponsored data have been criticised as anti-competitive and limiting open markets.^[10] It enables internet providers to gain significant advantage in the promotion of in-house services over competing independent companies, especially in data-heavy markets like video-streaming. A service provider, who is offering unlimited access to his service, will naturally seem more favourable to consumers over one where usage is limited. If the first provider is the one restricting access, he is creating a considerable advantage for himself over his competition, thereby restricting the freedom of the market. As many new internet and content services are launched targeting primarily mobile usage, and further adoption of internet connectivity globally (including broadband in rural areas of developed countries) relies heavily on mobile, zero-rating has also been regarded as a threat to the open internet, which is typically available via fixed line networks with unlimited usage tariffs or flat rates.^[22][23] The Wikimedia Foundation and Facebook have been specifically criticized for their zero-rating programs, to further strengthen incumbent mobile network operators and limit consumer rights to an open internet.^[24]

Notwithstanding these concerns, there remains a question as to whether regulators (e.g., the Federal Communications Commission in the U.S., the Telecom Regulatory Authority of India, the Body of European Regulators of Electronic Communications) can or will seek to limit subsidized data offerings in specific situations where the subsidy is enabled by third-party (non-carrier originated) software (e.g., an autonomous toll-free app) residing on a device outside the scope of prescribed telecommunication regulatory oversight and/or where the courts of local authority have determined that software code should be afforded the protections of free speech (e.g., the landmark Electronic Frontier Foundation software case of Bernstein v. United States, where the Ninth Circuit Court of Appeals ruled that software source code was speech protected by the First Amendment and that government regulation preventing its publication was unconstitutional).

Further, based upon recent indications from regulators in the U.S. and India, zero-rated and toll-free models would appear to avoid regulatory scrutiny where the system of subsidizing data is designed to limit actual or perceived discriminatory behavior vis-a-vis the application provider (e.g., a content provider paying for free data within their application) and/or the end-user (the individual using a subsidized application). An example of such design might be found in a circumstance where the telecom carrier provisioning the subsidized data is incapable of affirmatively knowing which applications it serves are at any given moment benefitting from a data subsidy or not (note - the data subsidy is apparent to the end-user and app provider, but not to the carrier until "after the fact" of such data so delivered to the application). In this sense, the carrier is "blind" as to any data subsidy characteristics at the time data is provisioned through the network and any carrier-induced favoritism is not feasible. Another feature of free data that appears to pass regulatory muster is "after the fact" reimbursement to the end-user for data consumed that may be thereafter freely utilized by the end-user for accessing any content on the Internet (not just the content of the subsidizing party). In this regard, subsidized data programs that reimburse to the end-user for data consumed plus provide an additive "bonus" amount of subsidized data to the end-user are considered to be even more favorable in terms of promoting the public good since end-users may be capable of aggregating significant amounts of free bandwidth (again, unrestricted in terms of how such bandwidth may be utilized by the end-user) which can in turn be used for engaging with larger numbers of online services (whether data subsidized in nature or not). Lastly, due to the competitive and open nature of the Internet, larger and more financially able online entities wishing to engage with end-users will, via free market forces, be naturally incentivized to continuously provide greater amounts of free data to those same end-users in exchange for these end-users' online engagement and patronage, resulting in a continuous, transparent, and upward spiral of subsidized data allotments to end-users which not only lowers the cost of online access to existing and new end-users, but enables these end-users to spend the free data so aggregated on accessing smaller and/or less financially able online services (e.g., start-ups) that are not capable of providing subsidized data as part of their application interaction. In summary, by fostering a transparent, competitive, and non-discriminatory system for distributing subsidized data, progressive government policy makers can ensure that end-users not only have more free data to access the Internet in a manner chosen solely by the end-user, but these end-users may also have greater overall amounts of monthly accumulated data at their disposal for accessing new and experimental services which otherwise might not be embraced by end-users due to existing and prohibitively high cost of bandwidth.

Moreover, the issue of free data is also showing promise in the field of mobile advertising, and in particular mitigating the problems associated with mobile ad blocking. In short, market participants are currently considering the use of free data as a form of basic reimbursement for data consumed in the process of an end-user consumer viewing a mobile ad that consumes bandwidth paid for by that end-user consumer. Similarly, the provisioning of free data may also take the form of a "data reward" for viewing said mobile ads, where the free data provided to the end-user is in excess to the amount consumed as a result of the ad itself (in effect granting the end-user consumer a "data surplus" that may be used for other non-ad related purposes).

See also

• Zero-rated supply (economics)
• Facebook Zero
• Wikipedia Zero
• Google Free Zone
• Deep packet inspection (DPI)
• Multichannel video programming distributor (MVPD)

References