The Chilean telecommunications regulator Subtel has banned mobile operators from offering so-called zero-rated social media apps – services like Twitter(s twtr) and Facebook(s fb) 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:
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(s 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(s goog) 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.