FCC's Wireless Bureau Dumps Zero-Rating Report

As expected, the FCC under chairman Ajit Pai has scrapped the Wireless Bureau's advisory that AT&T’s DirecTV Now sponsored-video data (zero rating) plan likely violates the FCC’s Open Internet order and that Verizon’s FreeBee Data 360 sponsored-data plan probably does too.

The Wireless Bureau has rescinded that report and signaled to AT&T and Verizon that it has no legal effect.

"On January 11, 2017, the Wireless Telecommunications Bureau (Bureau) issued a report titled 'Policy Review of Mobile Broadband Operators’ Sponsored Data Offerings for Zero Rated Content and Services' (Policy Review Report)," the Wireless Bureau order says. "Today, the Bureau sent letters to AT&T Mobility, T-Mobile, and Verizon Wireless closing the inquiries into each company’s sponsored data and zero-rating offerings, taking no further action. By this Order, and pursuant to Section 1.113 of the Commission’s rules, the Bureau now sets aside and rescinds the Policy Review Report and any and all guidance, determinations, and conclusions contained therein, including the document’s draft framework. The Policy Review Report will have no legal or other effect or meaning going forward."

"“Today, the Wireless Telecommunications Bureau is closing its investigation into wireless carriers' free-data offerings," said Pai of the move. "These free-data plans have proven to be popular among consumers, particularly low-income Americans, and have enhanced competition in the wireless marketplace. Going forward, the Federal Communications Commission will not focus on denying Americans free data. Instead, we will concentrate on expanding broadband deployment and encouraging innovative service offerings.”

“We’ve always believed that our free data programs like “FreeBee data” benefit consumers, and we’re very encouraged that the FCC agrees," said Verizon spokesman Rich Young. "We’re quite certain our customers feel the same way, particularly those who plan to watch the big game over the weekend – free of data charges.”

“Today’s announcement is a win for the millions of consumers who are reaping the benefits of services made available through free data programs," said AT&T sernior VP Joan Marsh. "We’re pleased that these innovative products will be able to continue to flourish in the marketplace.”

That zero-rating report had come with only days left in FCC chairman Tom Wheeler's tenure and was described by the then commissioner Pai as among various 11th-hour actions "pursuing partisan, political agendas that only harm investment and innovation."

He had called it "midnight regulation of free data," saying: "This time the midnight regulations come in the form of a Bureau-level report casting doubt on the legality of free data offerings—offerings that are popular among consumers precisely because they allow more access to online music, videos, and other content free of charge. This report, which I only saw after the FCC released the document, does not reflect the views of the majority of Commissioners. Fortunately, I am confident that this latest regulatory spasm will not have any impact on the Commission’s policymaking or enforcement activities following next week’s inauguration."

The initial Wireless Bureau report concluded: “The limited information we have obtained to date… tends to support a conclusion opposite from AT&T’s contentions—namely, that AT&T offers sponsored data to third-party content providers at terms and conditions that are effectively less favorable than those it offers to its affiliate,” adding, “the structure of Verizon Wireless’s FreeBee Data 360 sponsored data program offering may pose concerns for the same reasons as AT&T’s Sponsored Data program.”

Under the FCC's Open Internet order, there is a general conduct standard beyond the bright-line rules drawn against blocking, degrading and paid priority. It is a way for the FCC to look, on a case-by-case basis, at conduct that could impede the free flow of content from the edge to the consumer. Pai is no fan of that standard, either.

"Today, the Commission finally puts an end to the past Commission’s zero-rating inquiries and recommits to permissionless innovation," said Commissioner Michael O'Rielly. "While this is just a first step, these companies, and others, can now safely invest in and introduce highly popular products and services without fear of Commission intervention based on newly invented legal theories."

Democratic Commissioner Mignon Clyburn was not pleased with that and other bureau actions rescinding prior decisions of the Democratic majority.

“It is a basic principle of administrative procedure that actions must be accompanied by reasons for that action, else that action is unlawful," she said in a statement. "Yet that is exactly what multiple Bureaus have done today. The Bureaus rescind prior Bureau actions by simply citing a rule that allows them to do so, when in prior invocations of that rule there have been oft-lengthy explanations for the reasoning behind the actions.

“My office requested more than the allotted two days to review the dozen items released today. We were rebuffed. Then, we simply asked to have the Bureaus comply with the reasoned decisionmaking requirements of the APA. No deal. It is disappointing to see this Chairman engage in the same actions for which he criticized the prior Chairman. I am hopeful that in the future this Commission, consistent with our shared commitment to increased transparency, will heed the APA’s requirement for reasoned decisonmaking. The American public deserves no less.”

Chairman Pai had an answer: “In the waning days of the last Administration, the Federal Communications Commission's Bureaus and Offices released a series of controversial orders and reports," he said in a statement. "In some cases, Commissioners were given no advance notice whatsoever of these midnight regulations. In other cases, they were issued over the objection of two of the four Commissioners. And in all cases, their release ran contrary to the wishes expressed by the leadership of our congressional oversight committees. These last-minute actions, which did not enjoy the support of the majority of Commissioners at the time they were taken, should not bind us going forward. Accordingly, they are being revoked.”

Sen. Ed Markey (D-Mass.), who pushed the FCC to investigate zero rating plans, was not happy.

“It is clear that net neutrality is public enemy number one for Chairman Pai, and he is starting his campaign by protecting harmful zero-rating plans," Markey said. "Zero-rating plans can allow ISPs to favor their own content while putting everyone else at a competitive disadvantage. Instead of siding with big corporations, Chairman Pai and the FCC should explore how to fully enforce the Open Internet Order and ensure a free and open internet for everyone.”

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.