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Are zero-rating video plans pro-consumer or do they violate net neutrality?

24 Nov, 2015

The Chairman of the Federal Communications Commission (FCC) indicated that new zero-rating video plans -- plans that don’t charge customers for data used by specific video applications or services -- like T-Mobile’s and Comcast’s do not violate net neutrality rules. But this disruption of the cable bundle is prompting important questions about the future of video services: Will wireless service providers have the capacity to support the expected usage? How will the FCC interpret and enforce net neutrality rules and merger conditions? Are these plans precursors of new models for financing network investment and what will it all mean for consumer choice?

Speed Matters reported last week that some consumer advocates worry about T-Mobile’s new video plan that allows “unlimited” streaming of select video services. But FCC Chairman Tom Wheeler said at the November Open Commission meeting that the plan is “highly innovative and highly competitive,” adding that the FCC would “[keep] an eye on it, and measure it against the general conduct rule." An FCC spokesperson said “Commission staff is working to make sure it understands the new offering.”

The zero-rating plans are a response to video customers’ changing viewing habits. As pay TV subscriptions decline for the first time in history and cable television penetration drops due to cord-cutting, cable, telephone, and Internet companies are adapting to the trends -- and raising important questions for video providers, regulators, and consumers.

The first question is one of capacity. T-Mobile instituted an 18 percentprice hikefor its data users before announcing its “unlimited” video streaming plan. But a Wells Fargo Securities senior analyst is concerned T-Mobile’s program will grow too large for its usage capacity: “We hate to say it, but we have seen versions of this trend before. In our view, if customer usage soars, the benefits in terms of customer adds and lower churn could be offset if the network does not live up to expectations.” Will T-Mobile’s network capacity keep up with consumer demand?

Another question is whether Comcast -- and other major service and content providers -- can successfully navigate zero-rating plans through FCC regulation and recent merger conditions. Comcast’s 2011 takeover of NBCUniversal, for example, included the condition that Comcast can’t “disadvantage rival online video distribution through its broadband Internet access services and/or set-top boxes.” But Comcast’s new video streaming service, unlike other video streaming services, won’t count against broadband subscribers’ data caps. While some see this as a violation of those merger conditions, Comcast counters that the video streaming travels across Comcast’s private cable pipes, not the public Internet. How will the FCC interpret that reasoning?

Most important, these initiatives by network providers may be an attempt to realize value from online content, driving the virtuous cycle of investment in infrastructure enabling even more capacity for bandwidth-intensive video and other Internet applications. Wall Street has valued Internet application companies over infrastructure companies. Will zero-rating plans level the playing field for investment dollars?

Despite Chairman Wheeler’s statement that zero-rating plans don’t violate the FCC’s net neutrality rules because the plans don’t prioritize certain content over others, some are concerned the plans will limit consumer choice.

On the one hand, Motherboard writer Jason Koebler worries that this kind of market disruption will “force” customers into a single company’s service-content-advertising “ecosystem”: “Imagine the following scenario, which is or soon will be true for many, many people around the United States: Comcast is your only viable high-speed internet option, you are capped at 300 GB a month, and, now, the kicker -- Comcast's Stream TV offers, say, 75 percent of what you would normally watch on Netflix or Hulu or Amazon Prime.”

On the other hand, might these initiatives be precursors of a new, pro-consumer financial model for online video and other services?

T-Mobile tests net neutrality rules, raises prices on consumers (Speed Matters, Nov. 13, 2015)


FCC Report: Cable subscriptions decrease as prices rise (Speed Matters, Apr. 17, 2015)


T-Mobile Binge On plans, Sprint reorganization dissected (RCRWireless, Nov. 28, 2015)


Comcast-NBC Merger: Read the FCC Approval Letter (Wall Street Journal, Jan. 18, 2011)


Comcast says its streaming TV service won't count against data caps because it doesn't use the internet (The Verge, Nov. 21, 2015)


So This Is How Net Neutrality Dies (Motherboard, Nov. 19, 2015)


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