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FCC Hits Verizon, AT&T on Zero-Rating, But It Might Be Too Late

A zero-rating crackdown may quickly be reversed by Trump’s FCC.

The Federal Communications Commission issued a pair of sharply-worded letters to the nation's largest mobile broadband companies on Friday, warning that the practice of "zero-rating" might undermine net neutrality, the principle that all internet content should be equally accessible to consumers.

But after a year-long investigation into zero-rating, the nation's top telecom regulator may be too late to effectively police the practice, now that President-elect Trump has signaled that he intends to reverse federal open internet rules.


Zero-rating refers to a variety of practices that broadband companies use to exempt certain internet content and services from data caps, effectively favoring those services by providing consumers with an economic rationale to use them instead of rival offerings.

In AT&T's case, the FCC was responding to complaints about the telecom giant's plan to exempt content from DirecTV, which AT&T bought last year for $50 billion, from its broadband subscribers' data plans. This would effectively undercut the principle of non-discrimination at the heart of net neutrality, according to open internet advocates.

In its letter to AT&T, the FCC said it had "reached the preliminary conclusion that these practices inhibit competition, harm consumers, and interfere with the 'virtuous cycle' needed to assure the continuing benefits of the Open Internet." In its letter to Verizon, the FCC said the company's FreeBee Data 360 plan "has the potential to hinder competition and harm consumers."

The FCC asked both companies to respond to a list of questions by Dec. 15, so that the agency can "finalize" its review. That could lead to enforcement actions potentially banning both companies' zero-rating practices.

"We're glad that the FCC continues to raise concerns about these companies' self-dealing exemptions," Matt Wood, policy director at DC-based public interest group Free Press, said in a statement. "AT&T and Verizon impose arbitrary data caps and overcharges on most of their customers. This scheme gives these two carriers the leverage to favor their own video products and services and dress up double-charging as a discount."


Open internet advocates are particularly concerned that if AT&T's proposed $85 billion buyout of entertainment giant Time Warner is approved by the feds, the combined company could prioritize HBO or Warner Bros. content for AT&T's 100 million mobile, video, and broadband consumers, to the detriment of its rivals. The proposed merger is certain to face tough scrutiny from federal regulators and lawmakers.

Broadband giants like AT&T and Verizon say that zero-rating promotes competition and benefits consumers by allowing them to use certain in-house or otherwise favored services without exceeding data caps, thereby saving money. "These are incredibly popular free services available to millions of customers," AT&T said in a statement. "Once again, we will provide the FCC with additional information on why the government should not take away a service that saves consumers money."

Verizon did not immediately return a request for comment on the FCC's letter.

Open internet advocates argue that many of these plans violate net neutrality and disproportionately affect lower-income users who are less willing to incur larger monthly fees by exceeding data limits, thereby creating a kind of online "walled garden" for zero-rated content.

"The money flows from one pocket to another within each of these giant corporations," said Wood. "That way, AT&T can keep people tied to the DirecTV content it bought last year, harming video choice and broadband competition while pretending that this is some kind of free lunch for its customers."

Harold Feld, Senior Vice President at DC-based digital rights group Public Knowledge, applauded the the FCC's apparent willingness to crack down on zero-rating, but lamented the fact that the agency had taken so long—nearly one year—to get tough on the practice, especially now that Trump appears ready to appoint FCC officials who will likely roll back many of the FCC's open internet protections.

"There's real value in this because it lays down a marker on zero-rating that the Republican FCC will have to deal with," Feld told Motherboard. "In an ideal world, it would have been nice if they had done this last summer, but I think they thought they were going to have more time, once Hillary Clinton had won the election."

"That just adds to the heartbreak of it, the thought that they could have moved faster," Feld added. "As a Red Sox fan, it feels like Bill Buckner's Game Six error during the 1986 World Series against the Mets."