Photographer: Andrew Harrer

The Biggest Hole in the FCC's New Internet Rules

Zero-rating won't be blocked by the FCC's Open Internet proposals—and it could a major challenge to net neutrality

The people clamoring for tough, new regulations for Internet service—everyone from net neutrality activists and a few blue-chip companies to President Obama and John Oliver— got pretty much everything they wanted in the proposals outlined by the head of the Federal Communications Commission. The framework described by FCC Chairman Tom Wheeler, if enacted, would ban throttling, blocking, and paid prioritization by Internet service providers; reclassify broadband as a telecommunications utility, and bring mobile networks into the same rules. The FCC would also assert powers to police so-called interconnection agreements, such as the one in which Netflix paid Comcast for more direct access to its network.

The proposed rules would take away every opportunity for Internet providers to play favorites—except one. 

Wheeler’s rules don’t explicitly block a practice known as zero-rating, in which Internet providers exempt certain types of traffic from counting against data caps. Senior officials at the FCC said in a call with reporters on Wednesday that they aren't convinced zero-rating is a bad thing and see less urgency to act on an issue that largely happens overseas. 

U.S. Internet companies have seen zero-rating as key to reaching new audiences in poorer areas of the world. Facebook made the concept a cornerstone of its Internet.org project, introduced in 2013 as a way to expand Internet access in developing countries. Twitter has also started a zero-rating program. The practice isn’t unheard of in the U.S.: AT&T announced in early 2014 that it would begin a sponsored-data program, allowing content companies to pay to have their services not count against consumers' data plans. The concept is still in its infancy, but such companies as Slate, Hotels.com, and StubHub have all played with the idea. T-Mobile also recently launched a service in which streaming music is exempted from data caps. Both AT&T and T-Mobile have described the plans as bonuses for their customers.

Critics believe these deals could be as damaging as allowing content companies to pay for Internet fast lanes. Tim Berners-Lee, the creator of the World Wide Web, warned this week against what he called “positive discrimination,” saying it would give too much power to Internet providers. Antonios Drossos, managing partner of Rewheel, a consultancy in Finland, addressed the issue last year in an opinion piece for GigaOM. "Zero-rated mobile traffic is blunt anti-competitive price discrimination designed to favor telcos’ own or their partners’ apps while placing competing apps at a disadvantage,” he wrote. "A zero-rated app is an offer consumers can’t refuse."

The FCC agrees that zero-rating has the potential for abuse but hasn’t set a line for what practices are acceptable. While declining to discuss specific cases, an FCC official said that plans in which Internet providers don’t charge their partners were more likely to be found acceptable than those in which they do. T-Mobile's doesn't charge music services to participate in its Music Freedom program. "The vision for the program is that we include all music services," says Clint Patterson, a spokesman for the company. He drew a distinction between the service and AT&T's Sponsored Data program, calling them "entirely different species." 

Plus, there’s the increasing convergence of the broadband and media industries. AT&T has invested heavily in Internet video; Comcast owns NBCUniversal. FCC officials say they would look unfavorably on Internet providers zero-rating content coming from their affiliates. AT&T didn't respond to questions about the new rules and their zero-rating programs. 

FCC officials say there will be more details about what triggers would set off alarm bells in the proposal, which will be circulated to FCC commissioners on Thursday. Any perceived abuse of the principles of the Open Internet rules would be handled through the complaint process. Internet-service providers that want to start zero-rating programs could come to the FCC for guidance. But under the current proposals, there won't be any requirement to get a green light before launching. 

Before it's here, it's on the Bloomberg Terminal. LEARN MORE