9 Comments

Summary:

Witness the power of forward-thinking net neutrality law in action! This sort of thing could be hugely detrimental to the growth plans of Facebook in particular, but it’s ultimately very pro-consumer.

facebook mobile

The Chilean telecommunications regulator Subtel has banned mobile operators from offering so-called zero-rated social media apps – services like Twitter and Facebook that, through deals with the carriers, can be used without having to pay for mobile data. Subtel says such practices are illegal under Chilean net neutrality law.

These offers are particularly popular in developing markets because they give the carriers a way to get people familiar with the mobile internet, which is something they may have previously avoided due to high perceived cost. The user will get to see and use Twitter, for example, for free, and will then be encouraged to move across to paid data so they can click through the links.

I saw this in action when I was in South Africa recently. Here’s a screenshot from when I was using Twitter on my pre-paid MTN SIM card:

MTN zero rated Twitter

The problem with such tie-ins is that they fly in the face of net neutrality — they treat certain services differently than others in an anticompetitive way. If you’re a wannabe Facebook or Twitter competitor, you’re severely disadvantaged by the fact that those services are essentially offered for free, while your potential customers will need to pony up cash to even check your service out.

Subtel said on Tuesday that carriers in Chile will need to stop this practice by 1 June or face fines.

Chile was the first country to enshrine net neutrality in law, back in 2010. Europe is currently in the process of doing the same, though some argue that the new rules, which are very clear on the kind of net neutrality abuse that involve fast lanes for paying content providers, are less clear when it comes to zero-rated content. In the U.S., where there is no net neutrality law, AT&T is keen on offering zero-rated services.

Bad for Facebook

Facebook is no doubt hoping that the Chilean interpretation of net neutrality doesn’t catch on, because zero-rated content is crucial to the social network’s growth strategy.

Facebook and Google both want to be the ultimate portal to the internet – the average person’s starting point – and their best chance of playing this role for new customers is in emerging markets, where most people’s first internet experience is through the handset.

Through deals with carriers in such markets, Facebook can to all intents and purposes be the internet, or at least the service new users most associate with being online. This was a major reason for Facebook’s $19 billion WhatsApp takeover – WhatsApp plays a similar role for many new internet users, and Facebook needed to both neutralize the threat and ride on WhatsApp’s own growing popularity.

If the carriers can’t use Facebook as a way of upselling voice and SMS users to data, then Facebook is back to being a normal “over-the-top” service that – certainly through the wildly popular Facebook Messenger app – takes away valuable SMS revenue. In other words, Facebook is back to being a threat rather than a partner.

It’s not all bad news for the social network — net neutrality law at least stops the carriers from blocking or throttling Facebook Messenger traffic. Broadly, though, it has the makings of a strategic disaster, stopping Facebook (and any other social network or messaging service) from entrenching itself in the mobile market in an unassailable way. And in the long term, for consumers, that is a very good thing indeed.

  1. Net neutrality would be a non-issue if we had actual competition in the internet provider market. Unfortunately, the FCC has a lot of blame for this, so to give them more power to regulate the internet they have already regulated too much (cable franchising rules, for example), sounds like a move in the wrong direction.

    In Chile, customers are now being harmed because their mobile carriers were competing by offering some popular services for free.

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    1. Patrick Pushor Wednesday, May 28, 2014

      Nobody is being harmed. We can’t cherry pick the net neutrality enforcement when we like it vs. when we don’t. This is a good thing.

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    2. Ign. Rodríguez de R. Saturday, May 31, 2014

      Since I live in Chile and tried the service, I can explain what really happened:

      For one thing it was not really free: you needed to have the right SIM card (about US$10) and you needed to deposit money into the account (pre-paid, minimum another US$10ish), so for a very low cost they were making money off users through this loan. Also -and I have proof- the telco was passing on the mobile number to Facebook, so we were paying with our personal data. A number is very valuable, it allows user tracking across companies.

      Anyway, according to local net neutrality legislation that we have -and the US does not- this is illegal, ISPs are not allowed to decide what apps or sites a user is able to access. This is not out a fanatical religious stance, it is forward looking strategy. If ISPs are allowed to segment different sites or apps into different pricing schemes we can finally end up with a situation similar to cable TV, with the added problem of corporate interest, the Internet access provider which is also a content provider (cable TV) will charge users differently and privilege their own content, hurting competition and in the ling run killing the amazing competitive and innovating ecosystem of startups. Without net neutrality YouTube would not have existed, Comcast would have killed it. Get it?

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  2. There is typically more competition between mobile service providers than fixed line providers

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  3. Ralph Haygood Wednesday, May 28, 2014

    I applaud this development and hope many other countries will do likewise.

    It’s ironic Chilean phone companies have been, in effect, subsidizing the big American web companies, not only in view of the hideous all-too-recent subversion of Chilean democracy by the American government and the intimate involvement, as revealed by Edward Snowden and others, of the big American web companies with the American government but also in view of the efforts by the Chilean government to encourage entrepreneurship in Chile (e.g., http://www.startupchile.org/).

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  4. I’m less convinced by this argument, although there are two sides to it and a need for nuanced discussion. First off, my (very, very rough) estimates are that around 250m people currently get to use this type of thing & I’m expecting it to increase to 1.5bn over the next 5 years. I’m about to publish a research report on non-neutral mobile business models.

    A few things to think about:

    a) The biggest “zero-rated” app is probably Wikipedia http://wikimediafoundation.org/wiki/Mobile_partnerships
    b) This approach is also being used to zero-rated educational & healthcare info/apps. eg At least one telco zero-rates Coursera & similar things. Should a childcare or malaria-advice app be forbidden from zero-rating if, say, the Gates Foundation promotes or even pays?
    c) MMS data has been zero-rated for a decade & nobody has complained its anticompetitive vs. Instagram. Also, BlackBerry BES/BIS data is “zero rated” for subscribers
    d) AT&T’s model is sponsored, not zero-rated (cf Facebook & Twitter & Google which aren’t paying anything)
    e) Good argument that *ads* should be zero/free rated else they come from your quota & you’re paying to be advertised at
    f) It’s pretty easy to game the rules if you want. Instead of saying “zero-rated data for Spotify” you can easily say “subscribe to Spotify through us & get a bonus of 500MB free general-purpose neutral data”
    g) Some of these things are more like promotions, eg “Free Facebook for a month”. Notable that a bunch of Asian operators have recently *stopped* doing free Facebook & Google (eg Globe, Aircel)

    Overall, I disagree with the Rewheel guys on this. Think it has the potential to be counter to Neutrality but as yet I’m unconvinced that the downsides real. Should be watched/moderated rather than banned

    If you’re interested in my upcoming report, I’ll be publishing it in the next few days. Subscribe to my blog/mail list for details at disruptivewireless.blogspot.com

    Dean Bubley
    @disruptivedean

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    1. Hi Dean – I certainly like the idea of zero-rating ads! Can’t see a competition issue there. Same goes for public service stuff. Overall I think the test should be, does it unfairly entrench a commercial interest whose potential rivals would as a result be disadvantaged?

      As for MMS, that pre-dates Instagram etc but it’s an interesting point – when everything goes IP, an extreme (and unlikely) interpretation of net neutrality could be to say that communications are an over-the-top service no matter who supplies them, and all must be treated neutrally. Just an intellectual exercise, but imagine a local loop unbundling situation with mobile…

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  5. In other words, government is screwing the public in order to “help” the public. Is that about right?

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  6. The following phrase in the blog post caught my eye: “…services like Twitter and Facebook that, through deals with the carriers…”

    What are the financial terms and conditions of these deals?

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