On January 11, 2017, the Wireless Telecommunications Bureau (WTB or Bureau) of the Federal Communications Commission (FCC or Commission) issued an informal report—“Policy Review of Mobile Broadband Operators’ Sponsored Data Offerings for Zero-Rated Content and Services”—that establishes a draft framework for reviewing mobile broadband providers’ sponsored data and zero-rated offerings and analyzes the zero-rated and sponsored data programs of three providers—AT&T, T-Mobile, and Verizon. The Report is Chairman Wheeler’s parting shot on the open Internet issue, but it only ‘wags a raised finger’ at providers and expresses concern. In any event, since the incoming Republican administration is opposed to the 2015 Open Internet Order, it should have no real impact on existing or future business practices of broadband providers. That said, it is worth reviewing the report to examine the analysis undertaken by the Bureau.

I. The Draft Framework

The Report first establishes several overall considerations for analyzing zero-rated or sponsored data plans under the 2015 Open Internet Order. These include considerations about whether the specific offering affects Internet openness, whether the practice violates the three bright-line open Internet rules (no blocking, no throttling, and no paid prioritization), and whether the practice violates the catch-all general conduct standard, which prohibits broadband providers from unreasonably interfering with or unreasonably disadvantaging end users or edge providers’ use of the Internet. With respect to the general conduct standard, the Commission analyzes several factors based on a series of questions:

Non-Discrimination/Competitive Effects: Is zero-rating available, or available on materially favorable terms, only for a service directly affiliated with the BIAS provider? Does the zero-rating plan create exclusionary arrangements between the BIAS provider and unaffiliated content providers that raise reasonable competitive concerns from excluded parties? If a BIAS provider charges edge providers to be zero-rated, are those charges imposed on affiliated and unaffiliated entities effectively on a non-discriminatory basis?
Data Cap: Is the associated data cap sufficiently high as to make all data effectively zero-rated for the overwhelming majority of customers, both on a static and forward-looking basis, such that consumers really are not facing a choice between zero-rated and non-zero-rated activity?
Choice and End User Control: Do consumers and edge providers have the ability to easily opt into and out of the zero-rated plan if they prefer to remain with offers in line with those available at the time the plan was introduced, or to control other aspect of using the zero-rated service? Do consumers have easy alternatives for switching to other BIAS providers with different zero-rating practices?
Transparency: Are consumers and edge providers fully informed about the terms and conditions of the zero-rated plan in a timely, easy to understand and easy to execute manner? Do consumers have the ability to easily track usage and take actions to avoid hitting the cap without significant impacts on their usage behaviors?
Other: Does the zero-rated traffic serve a civic engagement purpose, such as increasing broadband adoption or serving health care, education, government, non-profits, etc.? Is the offering a functionally-equivalent, non-BIAS data service being used to evade the net neutrality rules?

The Report notes that the first factor—non-discrimination and competitive effect—is the most important in the context of zero-rated and sponsored data services, and that the FCC’s evaluation of non-discrimination and competitive effects draws authority not only from the Open Internet rules, but also from sections 201 and 202 of the Communications Act of 1934, as amended. The Report also highlights principles of competition and consumer protection, noting that “[t]raditional competition policy does become more complex in the context of vertical relationships between providers of services in upstream markets.”

II. Application to Mobile Broadband Zero-Rated and Sponsored Data Arrangements

With this framework in mind, the Report analyzes four zero-rating or sponsored data arrangements: (1) T-Mobile Binge On; (2) AT&T Data Perks; (3) AT&T Sponsored Data; and (4) Verizon FreeBee Data 360.

The Commission first finds that neither Binge On nor Data Perks is likely to violate the general conduct standard. With respect to Binge On, the Report finds that the service is unlikely to violate the general conduct standard because T-Mobile does not charge edge providers or end users for the service; consumers can disable it at any time; its technical standards do not appear to exclude edge providers; and T-Mobile provides “little streaming video programming of its own” and “does not compete substantially with downstream edge providers that supply video programming using Binge On.” Similarly, the Report finds that AT&T’s Data Perks service does not violate the general conduct standard because it allows consumers to get additional data to use for whatever purpose they choose and “most Data Perks participants are not marketing services that run over BIAS.”

However, the Report concludes that AT&T’s Sponsored Data program and Verizon FreeBee Data 360 are both likely to violate the general conduct standard. AT&T’s Sponsored Data program, the Report asserts, “likely obstruct[s] competition for video programming services delivered over mobile Internet platforms and harm[s] consumers by inhibiting unaffiliated edge providers’ ability to provide such service to AT&T’s wireless subscribers” while favoring affiliated content from DIRECTV. In particular, the Report finds that “[a]ll indications are that AT&T’s charges far exceed the costs AT&T incurs in providing the sponsored data service.” The Report similarly finds that Verizon’s FreeBee data favors its own zero-rated go90 content over unaffiliated content, although it notes that the magnitude of any anticompetitive effect likely is less than that of AT&T’s program, which provides access to full-length programming, since go90 only offers a limited array of short video and sports programming. Despite this lower risk of harm, the Report concludes that “there is the same potential for discriminatory conduct in favor of affiliated services, and its competitive impacts in the short-form portion of the market exist today,” and in the future Verizon could decide to include long-form content in its FreeBee program.

III. Key Takeaways from the Report

The framework outlined in the Report is a tentative draft, expressing concern, rather than the adoption of a rule, forfeiture order, or consent decree. Further, the Report was issued as Chairman Wheeler is leaving and the Republicans are taking control. Republican Commissioners Pai and O’Rielly support zero-rated (“free data”) programs and oppose applying Title II and the open Internet rules to broadband providers. As a result, the Report should not have a significant impact on industry practices.

Wireless Telecommunications Bureau Releases Draft Framework for Analyzing Zero-Rated and Sponsored Data Programs