OverfourbillionpeopleacrosstheglobecannotaffordInternetaccess.

Theireconomicdisadvantagesarecompoundedbytheirinabilitytoutilize
thecommunicative,educational,andcommercialtoolsthatmostInternet
userstakeforgranted.Enterzerorating.MobileInternetprovidersinthe
developingworldnowwaivethedatachargesforserviceslikeFacebook,
Wikipedia,orlocaljobsearchsites.Despitezeroratingsapparentbenefits,
manyadvocatesseektobanthepracticeasaviolationofnetneutrality

Internet access is prohibitively expensive for over four billion people

across the globe.1 Mobile Internet carriers throughout the developing world
have taken steps to close this gap through the practice of zero rating, where
they permit their subscribers to access websites or applications from select
2
edge providers at no charge. Hundreds of millions of users now take
advantage of zero-rated services like Facebooks Free Basics, which offers
access to sites like Facebook, Google, and Wikipedia alongside localized
resources ranging from Ebola health advisories to womens rights
3
applications and job postings. As of 2014, forty-five percent of mobile
operators around the world offered at least one zero-rated application.4
The Telecom Regulatory Authority of India (TRAI) subsequently
banned the program notwithstanding Facebooks mobilization of over a
9
million users for a write-in campaign.
Zero rating is not monolithic. Its implementations range from plans that offer
free access to a single website to those that offer a comprehensive platform
for mobile applications. And programs vary considerably depending on the
degree of control that the carriers exercise in deciding which sites or services
to feature.
The simplest zero-rating plans offer just one website for free. This discussion
focuses on three of these plans: Facebook Zero, the first zero- rated service;
Wikipedia Zero, which demonstrates a more transparent approach; and Virgin
Mobiles alacarteCustom plan in the United States.

Facebook Zero launched as the first zero-rated service in May 2010, offering
free Facebook through more than fifty different mobile carriers across forty-
18
five countries and territories. It offers a simplified version of the Facebook
site, one optimized for use on feature phones like those prevalent throughout
19
the developing world. One of the more noticeable differences between
Facebook Zero and Facebooks standard interface is the lack of photos:
2
Facebook Zero is by default text only.

a.FacebookFreeBasics

Free Basics offers a suite of zero-rated commercial sites alongside public

information and NGO resources that vary from country to country. When the
program launched as Internet.org in Zambia, for example, it offered not only
access to Facebook, Googles search page, and Wikipedia, but also the option
to browse local job listings, read UNICEF health advisories regarding Ebola,
and connect with the Zambian womens rights network.41 Following its
Zambian launch in July 2014, the program has expanded to cover sixteen
countries.
One year after launch, Facebook reported that more than half of people who
tried Internet.org had purchased full Internet access within the first thirty
4
days.

3.SponsoredData

The sponsored-data paradigm is one where a party pays the data charges for
delivery of its own content. AT&T pioneered the idea through its U.S.
sponsored-data plan in January 2014: its model allows marketers to pay the
data charges associated with app trials or video advertisements and thereby
61
avoid consuming subscribers monthly data allotments.
mCent pushed the model in a more ambitious direction when it launched its
62
own sponsored-data program in the developing world later in 2014. Major
online firms like Amazon and Twitter now pay the data charges for mCent
users to either view advertisements or use free versions of their apps, as do
63
several regional competitors and smaller developers. But the companies are
obliged to pay for more than just their own data: every time a user views an
ad or downloads a sponsored app, the sponsor pays for a data credit that the
user can use to browse any site on the Internet.64 The user who views a one
megabyte ad, for example, could earn two megabytes to be applied towards
browsing other parts of the web.65 Just one year after launch, mCent had
already partnered with 237 mobile carriers around the globe, and in the
process had become one of Indias largest platforms for advertising apps,
66
second only to Facebook.
In another variant on the sponsored-data approach, firms have begun to
propose zero-rated applications platforms. Imagine a version of Apples App
Store or Googles own Android market where developers could simply pay
the data charges so that users could download and use their apps for

free. Google announced its plans for this sort of platform last year,67 and
Microsoft Research has independently developed bill-splitting technologies
that would facilitate this sort of zero rating.68 These platforms seem to follow
in AT&Ts footsteps by requiring developers to pay only for their own data,
rather than following mCents model in also subsidizing general- use Internet.
This approach might make the platform more affordable for small developers,
albeit at the expense of providing users with wider access.
The mCent approach to sponsored data is interesting not only because it
subsidizes general-use Internet access, but also because it facilitates two
types of disintermediation. First, if the service is open to any developer
willing to pay its own data charges, then the zero-rating operator essentially
plays no gatekeeping role. Although wealthy firms and monetizable apps are
at an advantage, this approach removes the uncertainties and transaction costs
69
associated with zero-rating models that rely on the carriers discretion.
Second, this model is one that cuts across carriers. With conventional
approaches to zero rating, Carrier X might offer one package (say, Facebook
Zero) while Carrier Y offered another (say, zero-rated Twitter). For better or
worse, the carriers would leverage these programs as part of their marketing
campaign and low-income consumers would be splintered in their access to
one service or the other. But, as mCents founder Nathan Eagle has stated, the
major strength of the program is that it cuts across Internet providers: mCent
has already developed the
nfrastructure to manage payments to over two hundred different mobile
70
carriers.
B.FrameworksforComparison

To understand the structural differences between zero-rating programs, it is

helpful to delineate the services into the single-website, bundled, and
998 MARYLAND LAW REVIEW [V . 75:984
OL
sponsored-data categories outlined above. But to evaluate the impact of these
programs,
infrastructureone
70
must also
to manage consider
payments to over their functional
two hundred differences
different mobile in terms of their
carriers.
sponsorship models, site selection processes, and communications modalities.
B. Frameworks for Comparison
1.SponsorshipModels
To understand the structural differences between zero-rating programs,
it is helpful to delineate the services into the single-website, bundled, and
The platforms
sponsored-data sponsorship
categories outlined and
above.payment systems
But to evaluate the vary
impactin
of the degree of user
choice they allow.
these programs, Programs
one must also considerlike
theirAT&Ts
functionalsponsored
differences indata
terms or Googles
of their sponsorship models, site selection processes, and communications
proposed app store involve self-sponsorship, where the edge provider pays
modalities.
for its own data and users can visit only the sponsored site. The mCent
platform 1. engages
SponsorshipinModels
hybrid-sponsorship, where the edge provider pays for its
own Thedataplatforms
(or advertising
sponsorshipspace) while
and payment alsovary
systems subsidizing
in the degreedata
of that users can
user choice they allow. Programs like AT&Ts sponsored data
apply towards the sites of their choice. One can also imagine general or Googles
proposed app store involve self-sponsorship, where the edge provider pays
sponsorship,
for its own datawhere a benefactor
and users can visit only pays for Internet
the sponsored site. TheusemCent
without promoting its
own services.
platform engages The United Stateswhere
in hybrid-sponsorship, models thisprovider
the edge approach pays through
for its Lifeline
its own data (or advertising space) while also subsidizing data that
program, where the government subsidizes telephone service for low- income users can
apply towards
71 the sites of their choice. One can also imagine general
people. The
sponsorship, where following
a benefactorfigure
pays forarranges these
Internet use approaches
without promoting itson a spectrum of
increasing
own services.userThe choice:
United States models this approach through its Lifeline
program, where the government subsidizes telephone service for low-
71
income 1:
Figure people. The following
Sponsorship figureArrangedinorderofincreasinguserchoice.
Models. arranges these approaches on a
spectrum of increasing user choice:

Figure 1: Sponsorship Models. Arranged in order of increasing user

choice.

SELF-SPONSORSHIP HYBRID GENERAL

AT&T mCent Govt subsidies

Of course, many plans involve no payments. Wikipedia Zero and

Facebook Free Basics, for example, do not pay for traffic to their sites.
Mobile carriers instead deploy these services as either pro bono efforts or
marketing strategies. Plans like these are effectively a form of targeted
sponsorshipakin to self-sponsorshipwhere the carrier absorbs the
charges for sites it has partnered with.
Of course, many plans involve no payments. Wikipedia Zero and Facebook
Free Basics, for example, do not pay for traffic to their sites. Mobile carriers
instead deploy these services as either pro bono efforts or marketing
strategies. Plans like these are effectively a form of targeted sponsorship
akin to self-sponsorshipwhere the carrier absorbs the charges for sites it
has partnered with.
Other platforms offer one-to-one communications, where the user can
speak directly to other users. Instant-messaging and email applications like
those available through Free Basics are the clearest examples of such
services, and instant-messaging services like WhatsApp have also enjoyed
73
success with zero-rating. Sites operating in this modality are more
interactive than one-to-many sites, but they offer little more than the digital
version of the telephone or the SMS text message.
Finally, some platforms offer many-to-many communications, where any
user can post information for the rest of the world to see. This form of
communicationwhere practically anyone can become her own broadcaster
74
is one of the Internets unique strengths as a communications medium.
Facebook offers this potential: any user can generate a personal profile, a site
75
for a cause or event, or a blog post to share with the rest of the world. Zero-
rated Facebook users are limited, however, in their inability to share pictures
or video without paying for data. Wikipedia Zero likewise offers the potential
for many-to-many communications by allowing any user to create or edit an
encyclopedia entry. The following figure depicts the three modalities:
The walled-garden concern stems from an analysis of carriers incentives. All
else being equal, we might assume that carriers would prefer to zero-rate sites
that are profitableincluding sites they own and those willing to pay for
79
preferential treatment. Canadian cable and Internet provider Bell Mobility
offers a ready example of this temptation. Bell provides general Internet
access, but for a time it offered a special data plan to users who wanted to use
Bells own video-streaming service.80 For five dollars per month, subscribers
81
could watch up to ten hours of content without incurring data charges.
Regulators ultimately prohibited this arrangement because Bell discriminated
heavily in favor of its own content; by some estimates customers [were]
charged up to 800% more for all other forms of video and other Internet-
based data, making alternative services like Netflix or YouTube much more
expensive per megabyte.
Facebooks prior refusal to support encryption on Internet.org: as gatekeeper
of an applications platform, Facebook prohibited other sites and services
84from implementing features that would better protect users privacy.

ut Facebook does not provide tools for the user to transfer her contact list,
photos, and other content she has generated. Likewise, Facebook is not
interoperable with other social networking sites or messaging services. So the
ex-Facebook user cannot send messages to her Facebook friends from the
Google+ social network.
Zero rating poses the greatest threat to innovation where the platform owner
handpicks which services to include.

BeyondNeutrality:HowZero
RatingCan(Sometimes)
AdvanceUserChoice,
Innovation,andDemocratic
Participation
BJArd
disadvantage. Zero-rated video offered by mobile operators is an offer consumers cannot refuse.
Watching third party internet video over their open mobile internet plans instead of the zero-rated
ones would eat up the monthly data allowances in the matter of hours or set them back few hundred
EUR per month. That is clear!

Digital Fuel Monitor has shown in November 2014 that in many OECD markets where mobile
operators launched zero-rated film stores and TV services, consumers are either not allowed to buy
more than a few (5-10) gigabytes at all or most likely, they cannot afford to buy more because the
price of additional gigabytes is prohibitively expensive (e.g. 10 per gigabyte). Consumers are
harmed because their choice of internet video services is severely restricted.

Zero-rating is particularly harmful in mobile internet access markets where ISPs collectively set low
volume caps. In most fixed internet access markets where gigabyte volumes are unlimited and as
well in few mobile internet access markets where gigabyte volumes are very accommodative (e.g.

REWHEEL 2014 all rights reserved | www.rewheel.fi | www.dfmonitor.eu | rewheel@rewheel.fi | +358 44 203 2339
Thereislittledifferencebetweenzeroratingandcommonplacediscounts
thateveryoneacceptsasnormal.Asathoughtexperiment:Contentproviders
couldsendchecksorprepaidpaymentcardstoencourageuserstotrytheir
services,thusoffsettingordiscountingtheusersdatacosts.Zeroratingasa
couponorrebateseemssillytooutlaw.Onereasonforzeroratingisbecause
manyapplicationsorwebsitesarefreetobeginwith,andtheonlywayfora
companytodiscountitspriceinordertoattractmoreusersistohavea
negativeprice(i.e.,arebate,paideithertotheuserdirectlyorindirectly
throughthecarrierintheformofzerorateddata).

Fromaneconomicsperspective,sponsoreddataisnotmuchdifferentfrom
companiesestablishingtollfree800numbersorsenderpaysshipping,where
theprovideroftheservicepays,nottheconsumer.Indeed,800numberswere
abusinessmodelinnovationestablishedinthe1960sinresponsetoadvances
innetworkingtechnology,whichpriortothatrequiredtelephoneusersto
placeacollectcallthroughanoperator.Suchtollfreecallingmeantthatthe
consumercouldusenetworkserviceswiththecontentprovider(inthiscase
thecompanyprovidingtheserviceorsellingthegood)paying.TheFCChas
longsupported800numbersasproconsumer,writingthattollfreeservice
providespotential

Often,thebiggestbenefitsofexpandedabilitytodifferentiateincompetitive
marketsflowtosocalledmavericks,wholooktodisrupttheexistingterms
ofcompetition.IntheUnitedStates,anobviousexampleisTMobile.The
companybrandsitselfasanUncarrier,anditscolorfulCEOdoeshisbest
todistancethecompanyfromotheroperators.TMobilesBingeOn,offering
unlimitedstreamingvideoforconsumers,isasignificantdeparturefromthe
termsonwhichfirmshavecompetedtodate,andinawaythatisclearlyin
consumersinterest.

AnothermaverickexampleisthecompanyFreedomPop,avirtualoperator
attemptingtofollowthefreemiummodelprevalentonline.IntheUnited
Statesitoffersanintroductorywirelessservice,with500MBofdata,500
texts,and200minutesforfreeeverymonth,withthehopethatcustomers
buyadditionalbucketsofservice.51IthasalsolaunchedintheUnited
KingdomandSpainwithasimilarmodel,andrecentlyannounceditwillzero
rateWhatsAppusageinSpain.52

ProvidesNewServicesaFoothold

Networkeffectsareapredominantcharacteristicofinformationeconomies.
Gettingtheballrollingwiththefirstsetofcustomersisanimportanthurdle
foranynewapplicationorservice.Networkeffectsalsomeanitisimportant
tocontinuefindingtoolstoattractthenextmarginalcustomer,tocontinue
tobuildvalue.

Indiscussingthechallengesofapplicationdiscoveryonmobile,investment
analystBenedictEvansexplainsthattoday,appstoreslookalotlikethe
Yahoo[homepage]of20yearsago,andtheydon'tworkforthesamereasons
youcanbrowse20,000appsbutnotamillion.Hierarchicaldirectories
don'tscale.55Zeroratingcanprovideawayforapplicationstodifferentiate
themselvesandhelpincreaserecognition.Zeroratingofapplication
downloadscanalsoaiddiscoverybyovercomingconsumersreluctanceto
tryoutmultiplemobileapplicationswhenawayfromWiFi.

InapppaymentsPanerabread

Zeroratingisacommercialpracticeprovided
byMNOinmobileinternetservices.Typical
tariffpermonth(1giga,2giga,4giga...)ata
 fixedcost.
Thisschemecanbemodified,allowing
subscriberstoaccesscertainonlinecontentor
applicationstotallyorpartiallyfreeofcharge(at
reducedrates).
Overview
Zerorating:theassociateddatavolumeNOT
deductedfromtheusersdatacaps
singly
mobile

ld are
e only
dont
s are:
uania,

ast 92
se, 36
mpting Source: ITMedia Consulting
ps and
orage

uTube,
Thetypeofcontentvarieswidely:
most
onlinegovernmentandcommunity
servicesites;
Zero Rating 2
 popularserviceslikeFacebook,Google,
TwitterandWikipedia;
musicandmoviestreamingservices:
iHeartRadio,PandoraandSpotifybyTMobileinthe
US,HBOappbyVodafoneintheNetherlands;
customizedcontentdesignedforzeroRating:
FacebookZero,Internet.org,WikipediaZeroetc,
particularlyindevelopingcountries.Internet.org
deploymentsin20142015:Zambia,Tanzania,Kenya,
Colombia,Ghana,India.Thebusiness
arrangementsbetweencarrierandcontent
providerarethefollowing:Carrierinitiated:
withthepurposeofattractingcustomers.
Sponsoreddata:contentproviderspaycarriers.
ContentorientedapplicationslikeFacebook
Zero,Internet.orgdonotpayISPs.
Withthescopetoextendthediffusionoftheinternetin
lessdevelopedcountries,contentorientedservicesand
applicationslikeWikipedia,Facebook,Twitterand
Googlehavebeenactiveinworkingtogetherwith
mobileoperatorstodevelopandpromoteZeroRating
plans,particularlyindevelopingcountries.
Facebook,forexample,launchedFacebookZeroin
2010,incollaborationwith50mobileoperatorsin
countries.Itallowscustomersofparticipatingmobile
carrierstoaccessFacebooksstandardmobilesite
content,sendmessages,updatetheirstatusonazero
ratedbasis.
Itisworthynoticingthatthesezeroratingprojects
particularlydesignedfordevelopingcountriesdonot
engageafee:Facebook,Internet.org,Wikipediadonot
payISPsforprovidingthecontent.
However,concernshavebeenraisedassociatedwith
thesuccessofthesezeroratingprojects.Indeed,itwas
showninJanuary2015thatFacebookZeroshapesICT
useinthedevelopingworld:11%ofIndonesiansusing
FacebookalsosaidtheydidnotusetheInternet;65%
ofNigerians,61%ofIndonesians,and58%ofIndians
agreewiththestatementthat"FacebookistheInternet"
comparedwithonly5%intheUS.(Source:Millions
ofFacebookusershavenoideatheyreusingthe
internethttp://qz.com/333313/milliionsoffacebook
usershavenoideatheyreusingtheinternet/)

IntheU.S.,TMobileoffersitsdataplan
subscriberszeroratedaccesstomorethan25
onlinemusicservices,includingiHeartRadio,
PandoraandSpotify.
Besidesthirdpartyapps,carriersmaychooseto
zeroratetheirowncontentorcontentproduced
byaffiliatedcompanies,suchasuntilrecently
withmobileTVplansofferedbyCanadian
carriersBellMobilityandVideotron.
InItaly:3offersanunlimitedmusicpackage
Timincludesitsownmusicservice
VodafoneoffersatzeroratingitsSpotify
service
 PROs

Positive effects
Zero rated
CP
CP

MNO MNO MNO

Subscribers

Zero rating deals may benefit consumers with lower price for mobile broadband (in some cases content
providers pay for subscribers cross subsidization in multi-sided platform)

Both content providers and mobile network operators have a larger amount of users socially efficient
in the market with large fixed cost and small variable cost.

Mobile network operators could differentiate their services with the zero rating contents enhance
competition among the operators.
CONs
Zero Rating 7

Negative discrimination (accordingto net neutrality principles)

CP Zero rated
CP

MNO MNO MNO

Subscribers

Zero rating schemes may disadvantage the competing contents or services:

MNOs may favor own/partnered zero rated content;

Zero-rating falls into a broader category of discrimination, if MNOs discriminate against other traffic,
either by throttling (i.e. degrading transmission quality) or blocking them.

Zero Rating 8
 The Zero Rating Cases
Zero ratingfound violate net neutrality rules in:

Country Year Carrier Content/App Result

Wikipedia Zero, Facebook Stop the services by
Chile 2014 N/A
Zero, Google Free Zone June 1, 2014
The Vodafone fined of
Jan 2015 Vodafone HBO
Netherlands 200,000
Telekom Slovenije music streaming Deezer Stop the practices
Slovenia Jan 2015
cloud storage Hangar Mapa within 60 days
Si.mobil
Bell Mobility Bell Mobile TV Stop the practices
Canada Jan 2015
Vidotron illico.tv App March 31, Apr 29
Whatsapp
India Apr 2015 Airtel
Facebook
On progress
Source: ITMedia Consulting Zero Rating: recap

Case by case approach.

Zero ratingisdeemed as
a Net Neutrality violation
So far, a few countries,
Netherlands, Slovenia and
Chile, have taken a hardline by
explicitly banning zero rating
and consider it as a net
neutrality violation.
Zero-rating is also prohibited in Canada is having a case-by-case
Norway.
Not per se a violationbut
under certainconditions
In the U.S. the FCC is taking an
Zero Rating
approach consistent with the
recently issued net neutrality
rules: zero rating by carriers of
their own services, or of third-
party applications for a fee, will
likely be found unlawful; whereas
zero-rated third-party services
with no charges may remain
acceptable.
approach when it is not ISPs own
service, which is prohibited.
Zero ratingisnot prohibited
In other countries without net 9
neutrality rules, the large Internet
companies (champions of net
neutrality) could choose to team
up with mobile network operators
and offer zero-rated services to
subscribers.
Interestingly, Netflix, the all-time net neutrality
advocator, in April announced zero-rating
deals with ISPs in Australia, because several of
their competing streaming services have
participated the zero-rating schemes. However
the plan was given up in May due to the fierce
debate over the zero rating practice.

Source: ITMedia Consulting

Zero Rating 10
 Net Neutrality and Zero Rating (2)

Iszero-ratinga
Other EU Countries Net Neutrality Policy State of Legislation
NN violation?
Policy Guidelines by NPT
Norway Co-regulation Yes
National P&T Authority
Memorandum on Network
Sweden Self- regulation No cases
Neutrality in 2009
Industry code of conduct
(stakeholders and consumer
Denmark Self- regulation No cases
organisations, regulator ERST
as an observer )
Industry code of conduct
United Kingdom Self- regulation Under debate
Broadband Stakeholder Group
Belgium Law under discussion Proposal to enact NN law -
Luxembourg Law under discussion Proposal to enact NN Law -
Proposal to enact NN law,
Germany Law under discussion Yes (in the proposal)
currently freezed
Other Countries No regulation, no cases
Source: ITMedia Consulting Net Neutrality and Zero Rating(1)
Zero Rating 12
Country Net Neutrality Law Zero rating Iszero-ratinga NN violation?
Chile June 2010 x Yes
Israel 2011 Mobile, 2014 Fixed No
The Netherlands June 2012 x Yes
Slovenia Jan 2013 x Yes
Brazil April 2014 No
Finland Jan 2015 Do not carry
U.S. Feb 2015 Case by case
Canada policy guidelines x Case by case
India Not approved yet x Under Debate
Japan policy guidelines Do not carry -
The Netherlands has esplicity requested to
Source: ITMedia Consulting

include and prohibit 0 rating. Other Member

States (Slovenia, Poland, Estonia, Greece, Hungary
EU In progress and Finland ) have supported this proposal. EU
commission seemsorientedon acase bycase by
caseapproach(asin the US)
Other EU countries See the following slide
Zero Rating 11

1.NetworkExternalities
Themostsignificanteffectofzeroratingschemesisno
doubttoexpandparticipationinthezeroratedcontent
andapplications,andtoincreasemobilewireless
penetration.Thisincreasemaygenerateavarietyof
economicandsocietalbenefits,especiallywithinlow
incomepopulationandindevelopingcountries.
2.CompetitivePriceDiscrimination
Boththeindustriesofmobilebroadbandoperatorand
OTT(Onlinecontentprovider)arecharacterizedbylarge,
nonrecoupableinvestmentsinR&Dand/orphysical
infrastructure.Themarginalcostofservingmoreusersis
trivial.Firmsneedusersparticipationtorecoupthefixed
cost.Insuchindustriesconsumerwelfareandsocial
welfarecanalsobeincreasedifdemandispushed
upwards,withmarginaluserspurchase,evenata
discountedprice.Bundlingthetwoproductsmobile
broadbandandonlinecontentcanbeefficient
3,MultisidedPlatformCompetition
Amultisidedplatformtypicallyinternalizesthe
externalitiesbetweenagentgroupsandenhancethevalue
oftheplatform.ServiceslikeFacebook,Twitterand
Wikipedia,attractconsumerswhoarealsocontent
creators;thus,byencouragingadditionalusersto
participate,zeroratingincreasesboththenumberof
consumersandtheamountofcontentavailable.This
effecthelpstoexplainwhyserviceproviderslike
Facebookarealsotakingtheleadinpromotingzerorating
programs.
4.ProductDifferentiation
Zeroratingschememayactasaninstrumentbywhich
mobilebroadbandoperatorsdifferentiatethemselvesfrom
competitorsbyofferingaccesstocustomizedcontentwith
theirmobilewirelessservices.Productdifferentiation
providevarietiestoconsumers,andmayalsoserveto
intensifycompetitioninthemobilemarket.