It looks increasingly likely that the FCC will use 2016 to increase its regulatory control of the Internet.  The Commission is now focused on the free data plans offered by major Internet service providers (ISPs). These plans permit end user customers to exclude certain (usually popular) edge provider’s content from their data usage allowance.

In its February Open Internet Order, the FCC offered a mixed opinion of free data plans:

On the one hand, evidence in the record suggests that these business models may in some instances provide benefits to consumers, with particular reference to their use in the provision of mobile services. Service providers contend that these business models increase choice and lower costs for consumers. Commenters also assert that sophisticated approaches to pricing also benefit edge providers by helping them distinguish themselves in the marketplace and tailor their services to consumer demands. Commenters assert that such sponsored data arrangements also support continued investment in broadband infrastructure and promote the virtuous cycle, and that there exist spillover benefits from sponsored data practices that should be considered. On the other hand, some commenters strongly oppose sponsored data plans, arguing that “the power to exempt selective services from data caps seriously distorts competition, favors companies with the deepest pockets, and prevents consumers from exercising control over what they are able to access on the Internet,” again with specific reference to mobile services. In addition, some commenters argue that sponsored data plans are a harmful form of discrimination. The record also reflects concerns that such arrangements may hamper innovation and monetize artificial scarcity.

We are mindful of the concerns raised in the record that sponsored data plans have the potential to distort competition by allowing service providers to pick and choose among content and application providers to feature on different service plans. At the same time, new service offerings, depending on how they are structured, could benefit consumers and competition. Accordingly, we will look at and assess such practices under the no-unreasonable interference/disadvantage standard, based on the facts of each individual case, and take action as necessary  (Open Internet Order, paras. 151-152).

After the Open Internet Order, the Commission chose to completely ignore free data plans until November when FCC Chairman To Wheeler was asked about T- Mobile’s “Binge On" plan which exempts 24 services including Netflix, HBO, and Hulu from T-Mobile's high-speed data limits. Wheeler responded positively, noting that in his opinion: "It’s clear in the Open Internet Order that we said we are pro-competition and pro-innovation. Clearly this meets both of those criteria. It's highly innovative and highly competitive."

However, the Chairman’s positive feelings were apparently short lived.  On December 16^th, the FCC sent letters to AT&T, T Mobile and Comcast requesting them to answer questions related to their free data services and whether they violate the net neutrality rules. The letters, sought meetings with "relevant technical and business personnel" from those companies by January 15, 2016.

Chairman Wheeler characterized the upcoming meetings as simply an attempt by the Commission to keep aware of the latest Internet service offerings. However, Republican Commissioner Ajit Pai called the Commission’s action a “fishing expedition” and stated that the letters are likely to lead to a full investigation. He argued that the FCC should not haul in companies “left and right” and force them to justify their business plans.

It seems clear that the Commission will use its Internet “future conduct” rule to determine if these free data plans provide an advantage to their sponsoring companies. On the one hand it would seem that these plans provide a huge advantage to large ISPs by making services such as access to Netflix seemingly free to consumers, while absorbing content acquiring costs to win market share. Smaller ISPs could never eat those costs and stay viable.  On the other hand, for consumers who utilize the free data, these plans allow them to sample different Internet offerings potentially driving more Internet use. 

That is why the feeling here is, that for the Commission to avoid having to review these plans on a case-by-case basis and delaying countless business plans, it makes sense to create objective standards free data plans would have to meet to be deemed lawful without a Commission review. 

For example, a lawful free data plan might have to be in a specific geographic area for a time-certain duration. In other words, the plan would have to be seen as a promotion rather than an ongoing offering that could lead consumers to choose that ISP because of the free data. Obviously, it is not easy to come up with such objective standards.  However, it is worth trying because the alternative, time-consuming individual case-by-case reviews of individual company business plans, is so awful.

By Andy Regitsky, CCMI