US based carrier T-Mobile is zero rating video streams of subscribers using Crackle, Encore, ESPN, Fox Sports, Fox Sports Go, HBO Now, HBO Go, Hulu, MLB, Movieplex, NBC Sports, Netflix, Sling TV, Sling Box, SHOWTIME, STARZ, T-Mobile TV, Univision Deportes, Ustream, Vessel, Vevo, VUDU, and says more services are being signed up. Zero rating refers to the practice of making a specific set of services free of data charges for users and is a violation of Net Neutrality. The move is reminiscent of Airtel Zero, a service that Bharti Airtel was launching in India, which, to begin with, would allow Flipkart to pay the company to make its service free for users.
Video services are a key challenge and opportunity for carriers in India: they have the highest usage and clog the network. For example, for Airtel and Reliance Communications, video constitutes close to 40% of their traffic. With increase in speeds, as users move from dialup-level speeds to broadband speeds, much of the growth typically comes from viewership of video. Thus, the argument that is typically posited (one we’ve heard often), is of charging these service providers a “congestion charge”.
Our take on this move:
1. It’s eerily similar to Facebook’s Internet.org/Freebasics: It’s as if T-Mobile copy pasted Facebook’s Internet.org approach:
Binge On is open to any streaming video provider who meets the technical requirements, which are available online at www.t-mobile.com/bingeon. And it’s completely free for video streaming providers to join.
The technical requirements mandate lower resolution video only:
Powered by new technology built in to T-Mobile’s network, Binge On optimizes video for mobile screens, minimizing data consumption while still delivering DVD or better quality (e.g. 480p or better). That means more reliable streaming for services that stream free with Binge On, and for almost all other video, it means T-Mobile Simple Choice customers can watch up to three times more video from their data plan.
2. Only the carriers benefit: Note that on Internet.org and Airtel Zero, the brand who aggregates the services owns the customer, and not the individual service providers. In a sense, this is set up for a switch a few years from now: as consumption increases and this becomes the dominant platform for video consumption, the services could be charged for making data free, like Airtel did for Airtel Zero. Once a service signs up, competitors get forced to sign up, doing two things: creating an additional barrier to entry for startups, and instituting a carriage fee. Like we saw with Internet.org, many services cannot leave because their competitors are also on it. There is little advantage by being zero rated and a great disadvantage of exiting it. Once you’re in, you’re stuck unless every one of your competitors decides to leave.
For carriers like Airtel, charging businesses to allow consumers to use services for free provides two key advantages: they tend to earn more per MB from businesses than they do from consumers. In case of Airtel, the company posited a charge of Re 1 per MB, as opposed to the revenue per MB it earned from consumers at Rs 0.25 per MB. The other short-lived competitive advantage is that unless exclusivity deals are signed between the carrier and the company, other carriers will also have to start launching similar services. Once this happens, it will no longer remain a competitive advantage.
Then you have carriers providing video the same way DTH operators provide TV channels: in a manner that is controlled and defined by their specifications. The carrier will own the customer. Also, which services are accessible and how they are accessible will vary for users, depending on the carrier. We’ve explained this with Airtel Zero: Splitting India’s Internet into many Internets.
3. Doesn’t address congestion and isn’t the best way: When you get a service for free, you tend to use more of it. This is especially true in case of video since the amount of data consumed by videos is high. By zero rating specific video services, consumption of video will only increase. By no means are we suggesting that people shouldn’t get to watch more video, but the best way of addressing congestion is to increase capacity: to offload traffic to WiFi, and/or acquire more spectrum. Governments need to consider lowering the price of spectrum, since that lowers costs of providing Internet services. In India, the right of way policy is still awaited, which should hopefully lead to more wireline Internet, as well as public WiFi as the last mile connector.