Zero Rating: the massive loophole that could undermine net neutrality in the EU and keep the Internet in Europe from thriving.

ISPs could cement their role as gatekeepers. They would decide which sites and apps you use the most, not you.

If you want to use the Internet on your phone in most parts of Europe, expect it to suck. Data allowances are low and the telecoms force you onto their own, inferior apps for doing things like watching videos or listening to music.

For example, if you’re on Magyar Telekom Nyrt, a T-Mobile service offered in Hungary, your measly 500 megabyte monthly Internet allowance could get used up in less than an hour on video sites like Vimeo and YouTube. If you want to watch video, you’ll basically be forced to use their IPTV platform instead, a video service based around local television offerings that T-Mobile allows subscribers to stream unlimited amounts of for free.

It’s actually been like this for so long that Europe has fallen behind much of the world in online innovation. Open services are walled off and prohibitively expensive, while services that feel more like American cable television than the Internet are essentially force fed.

The problem is that ISPs and telecoms in Europe have been allowed to discriminate against certain data in order to encourage their subscribers to use their own websites and apps, and those of their partners, over others. It’s known as “zero rating,” and it has been widely used in many European countries for years (and it’s becoming more common in the US).

Here’s how it works. ISPs, both mobile and home Internet providers, set caps on how much data their customers can use each month before their service is either shut off or degraded to a point that it is unusable. Then, they make arrangements with companies like Spotify or Facebook to allow their customers to use those services without having the associated data usage count against their monthly caps. The result is that Internet users are less likely to use services that are outside their ISPs zero rating plan.

Unfortunately, in the regulatory documents for implementing net neutrality rules in the European Union that were recently released, zero rating is not banned. According to the document, regulators would approve or reject zero rating arrangements on a case-by-case basis.

Zero rating clearly violates the basic net neutrality principle that all data on the Internet should be treated the same, but ISPs have been getting away with it by saying they are giving away something for “free,” (even though it’s subsidized by the money users pay each month).

Bad for consumers

Fact is, zero rating is basically a scam, and when ISPs are allowed to do it, consumers end up with inferior Internet access. According to research from Rewheel, which tracks the European mobile market, mobile operators in Europe that zero-rate their own video services or video services of their partners offer data caps that are 50 percent lower than what their competitors that don’t zero-rate offer for the same prices. They also found that zero-rated video services launched in 2014 by European mobile carriers were accompanied by sharp increases in the per-gigabyte costs for mobile data.

via Rewheel

In countries where zero rating has been banned, ISPs have actually increased how much data they give their subscribers each month. Last year in the Netherlands, following a regulatory action clarifying that zero rating was considered a violation of net neutrality, KPN, the top mobile operator, doubled how much data their subscribers get each month. And in Slovenia, mobile providers Telekom Slovenije and Si.mobile began offering packages with higher data caps after regulators there ruled that zero rating violated net neutrality laws.

This makes perfect sense. When ISPs are allowed to exempt certain services from data caps in order to encourage subscribers to use those services more, lowering data caps becomes a way to make the exemptions even more enticing and profitable. Conversely, when you ban zero-rating, that incentive disappears, and ISPs raise the caps to something more reasonable.

Bad for competition

Allowing zero-rating skews ISP incentives in other ways, too. With zero-rating, ISPs compete more on having the best zero-rated content, rather than improving their basic services and providing a better product overall for their customers. One of the claims ISPs make when fighting net neutrality rules is that they could lead to less investment in Internet infrastructure. That hasn’t been the case in countries like the US that have adopted strong net neutrality rules. But if ISPs are encouraged to compete on content rather than things like better coverage, faster speeds, and higher monthly data allowances, it’s likely that infrastructure investment would be affected, but not the way ISPs claim. The absence of strong net neutrality rules would kill investment, because zero-rating incentivizes ISPs to keep bandwidth scarce.

Zero rating also hurts freedom of expression on the Internet generally. When ISPs form partnerships with media companies and apps to have their content zero rated, they tend to work with established companies that already have name recognition with customers. You can expect to see zero rated partnerships with apps like Spotify and Hulu, services that allow you to consume largely mainstream content with little or no ability for individuals to create or interact with the content. Blogging platforms, independent video communities, and sites for underground music can’t compete with big mainstream sites commercially, but there is no denying that it is those sites that make the Internet a gamechanger for freedom of expression.

Bad for innovation

Lastly, startup innovation becomes much more difficult when there is uncertainty around landing zero rating agreements. Investors would be far less likely to put up funding without a guarantee that the product they would be investing in will be zero rated, and, as explained above, the products most likely to be zero rated are those with established names that are attractive to consumers, not unknown startups.

According to a study commissioned by CTIA — The Wireless Association, a telecom lobbying organization, 74 percent of consumers say they would be more likely to watch videos on a service that didn’t count against their monthly data allowance. That overwhelming sentiment makes it clear that it would be ISPs and their zero rating plans deciding which startups succeed and which ones fail, not the innovators trying to build great new products. Furthermore, the European Union’s proposal for dealing with zero rating on a case-by-case basis would make this even more difficult. Not only would new companies have to deal with uncertainty around landing zero rating deals, they won’t have any way of knowing for sure if regulators will sign off their arrangements or strike them down, making them far more expensive for customers to use.

Even if there’s any rhyme or reason to a single country’s decision, imagine how this plays out across 28 member states. The rules and norms around what kinds of zero-rating are acceptable and what kinds aren’t will be so byzantine that only the largest players will be able to keep track of them all. When the whole point of European regulation is to create consistent, predictable rules across the continent, this will be an epic fail.

Totally offensive

There’s something even shadier here, bordering on disgusting. Zero rating has become the ISP’s default response for how they are going to help low-income communities access the Internet.

Yes, after decades of refusing to adequately wire poor neighborhoods, after years of soaring prices and low data caps, ISPs have the chutzpah to blame net neutrality advocates for the digital divide, asserting that, if they could only be allowed to offer more zero-rating plans, social inequality wouldn’t lead to inequality of access.

In reality, the opposite is true. In a zero-rated world, only the rich can access the actual internet. Everyone else is stuck with a handful of handpicked sites that ISPs want to offer, or that pay for the privilege. Arguing that people who can’t afford access should be content with a smaller set of websites and apps than everyone else is simply offensive. The Internet is increasingly a necessity for modern life. and We can’t let ISPs to hijack a public mandate to make the Internet more accessible with a bait-and-switch where the Internet you get access to consists of a limited, handpicked set of sites.

It doesn’t have to be this way.

Countries like India, Brazil, and the Netherlands have already enacted bright line bans on zero rating, and they have seen the quality of their services increase. The European Union’s communications regulator, BEREC, has a chance to bring the EU up to speed and help make Europe’s Internet economy more vibrant and competitive with the rest of the world.

These net neutrality rules could fundamentally alter how Europeans use and innovate on the Internet, but unless zero rating based on content is clearly banned they will fall short.

The rules are currently in a period of public comment and review, so Internet users, startups, academics, and activists have one last shot at fixing the rules before they take effect. In the US and India, the millions of comments that poured in during similar public consultations were crucial to winning strong net neutrality rules. BEREC’s consultation ends July 18th. The clock is ticking.

Do you want less open Internet data each month at a higher cost? Do you want to settle for walled-off apps and services that only give you the content your ISPs want you to see?

Do you want the largest economy in the world to have their entire Internet economy at the mercy of Europe’s monopolistic ISPs?

No? Then file a comment with BEREC now, and share this post with as many people as you can, inside and outside of the Europe. This fight matters to all of us.

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