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Why zero rating is nothing like Amazon free shipping

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Verizon’s Craig Silliman says the company supports net neutrality, but carved out an exception for zero-rating. He said it was like Amazon free shipping. Is it?

Speaking on The Communicators on C-SPAN, Verizon General Counsel Craig Silliman said his company supports the principles of network neutrality. However, when asked about zero rating (exempting some preferred video services from counting against a data cap) he carved out a big exception. Mr. Silliman said the practice was well established, and compared it to Amazon paying for shipping, or a viewer watching a free broadcast, or even the Wall Street Journal giving a discount on a subscription.

Mr. Silliman went even further. He suggested those concerned about zero rating were trying to spoil the fun for everyone else, because: “Generally speaking, when consumers get something for free they are pretty happy.”

Is zero rating just like Amazon free shipping, or is a company using it taking unfair advantage?

Why zero rating is not like Amazon free shipping

The most important distinction between Amazon free shipping and zero rating is availability. Most of the merchandise available on Amazon is also for sale at other online merchants. All the other online merchants are available everywhere Amazon is, and they all face the same restrictions inherent in Internet selling. So, buying a DVD or pair of headphones from one eStore over another comes down to the quality of service provided and the overall cost, of which shipping is a part.

In many regions of the country an ISP is the sole provider of service. If the ISP makes its video service exempt from the broadband cap this is an advantage a competing video service cannot match. It is the same with wireless broadband. Although wireless services are more competitive, there are still plenty of places where just one wireless provider works well.

Zero rating is a powerful advantage

Make no mistake, zero rating is a powerful advantage, particularly on wireless networks where caps are very low.

I am a T-mobile customer and watch video from services like Netflix and Sling TV on my phone while I work out in the morning. After one of these viewing sessions my phone usually warns me that I have consumed 200 to 300 megabytes of bandwidth. At that rate, it wouldn’t take long to burn through my data cap.

However, because of T-Mobile’s Binge On program, I don’t have to worry. My preferred services are covered and don’t count toward my cap.

Zero rating is a substantial problem for a new service, like DirecTV Now. I’m not sure if it is covered by the Binge ON program or not.* And the uncertainty is enough to stop me using the service, except when my phone is connected via WIFI.

Verizon and AT&T are exempting their video services from the data cap on their networks. That means any competing services will likely only be used on WIFI. In other words, the competing services can’t really compete!

Zero rating will become a bigger issue on broadband

Today, broadband caps are much higher than wireless caps in the US. AT&T U-verse and Comcast have 1GB caps in my area. Even watching several hours of video a day in my house I still only consume about a third of the cap.

That will change dramatically as new viewing technologies like ultra HD (UHD) and virtually reality (VR) become more common. UHD video consumes 4 to 8 times more bandwidth than HD, and VR could be many times that.

If AT&T and Comcast zero rate their UHD or VR services, no other services will be able to compete.

Simply put, zero rating is just another way for a company with monopoly power (or nearly so) to take unfair advantage in a new market. Despite the protestations of Mr. Silliman, it is squarely in the wheelhouse of net neutrality.

Why it matters

Verizon wants everyone to believe that zero rating is a practice which brings benefits to consumers without inflicting any harm.

However, it gives unfair advantage to services not subject to data caps.

In the long term, this will act to reduce competition and increase prices for consumers.

*As of now, DirecTV Now is not part of T-Mobile’s Binge ON program.


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