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Free mobile data is good for consumers

Bret Swanson | May 26, 2016
Those opposed are overthinking zero rating.

Have you ever attended a sporting event where billboards flashed advertisements? Quite likely. Have you ever been to a conference with sponsored events, shuttles and meals? Happens all the time. In these cases, and many more, advertisers in effect help subsidize your ticket purchase. The practice is so common as to be unremarkable. 

And yet the Federal Communications Commission (FCC), prodded by self-styled consumer interest groups, is seeking to ban sponsored data on the Internet. Spotify and Pandora may want to help pay for part of your T-Mobile subscription, and Facebook may wish to defray the cost of getting online for cash-strapped young people, but these groups insist these consumer subsidies are secretly dangerous. Free data, they are hoping the FCC will declare, is bad for you. 

But wait, you reply, doesn’t the FCC talk urgently about getting more people online and trying to reduce the cost of broadband? Aren’t regular mobile subscribers tired of bumping up against their data limits? And, therefore, might not free data sponsored by content and app firms help resolve these challenges? Let’s hope the FCC can see past the hollow claims of the shadowy online activists and encourage free data for consumers.

Opponents of free data plans don’t argue they are bad for consumers. Rather they’ve adopted a convoluted rationale: Free data is bad for the sponsors. Or at least for potential sponsors. Not every app and content firm, they say, has the resources to sponsor data. Those that can pay may enjoy an unfair advantage. Therefore, no app or content firm should be able to sponsor data.

Yes, and not every firm has equal resources to pay luxurious office rent or high salaries, or to invest in cutting-edge machinery. It’s a fact of life. But even life’s inherent unfairness misses the point. Banning free data means both denying consumers lower prices and also denying small firms the ability to gain access to those consumers through innovative partnerships.

Magazines are another good example of what are known as multisided markets. So are online newspapers such as WSJ.com and NYTimes.com. These publications are supported by both consumer subscriptions and advertisers. The cost of producing the magazine or website is split between consumers and advertisers (sponsors), who each find value in this platform, which brings multiple parties together. If federal law banned advertisements in magazines, websites or sporting events, the entire cost of the product would fall on consumers, and consumers would have to pay much higher subscription and ticket prices.

But that’s exactly what the effort to ban free data would do: force consumers alone to bear the burden of mobile broadband networks, which cost hundreds of billions of dollars to build and maintain. The second harmful effect may be less intuitive, but it directly contradicts the FCC’s oft-stated goal of increasing competition in the Internet ecosystem. You see, a sponsored data ban could also block upstart firms with new apps or innovative content from reaching new audiences.

 

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