As California’s Legislature considers net neutrality rules, one focus of the debate has, appropriately, been the potential impacts to consumers. A flash point has emerged: whether to ban offers that provide consumers with the choice of receiving mobile broadband data that doesn’t count against their data cap.
Known as zero-rated data, these types of offers previously were not considered in violation of the net neutrality “bright-line” rules, and were not prohibited under the net neutrality rules adopted by the Obama Federal Communications Commission. However, the two net neutrality bill before the Legislature, Senate Bill 822 by San Francisco Sen. Scott Wiener, would effectively ban these offers.
What is clear is that banning these types of offers would hurt a large number of California consumers. Moreover, low-income and minority Californians would be disproportionately impacted by a prohibition on zero-rated services because they are more reliant on a smartphone to access the Internet.
At least 3.6 million Californians use their mobile devices to stream video using these free data services – including nearly 1.5 million Latinos; 191,000 African Americans; 387,000 Asian Americans; and 235,000 Californians who have an annual household income less than $20,000.
Approximately one-third of Latino, African American and low income consumers and one-quarter of Asian American consumers in households with broadband access rely exclusively on smartphones and mobile broadband services to access the internet. The economic impacts would be concentrated on these Californians, and could be as much as $30 per month per person if these plans are eliminated.
While 77 percent of low-income adults use their broadband connection for entertainment, to watch and download TV shows and movies, games, and music, these consumers also use their smartphones to read the news (66 percent), find job opportunities (57 percent) and access online banking services (42 percent). Practically speaking, these consumers will either pay more – if they can afford to – or they will have less access to entertainment and other critical services.
Free data is a way of lowering the price of mobile broadband service, in the same way that internet retailers lower the cost of products by offering free shipping and brick and mortar retailers offer buy-one-get-one-free promotions. Although it has been argued that free data could be bad for consumers, critics of these offerings have not presented evidence of any actual harm. To the contrary, as the numbers discussed above clearly demonstrate, California consumers have enthusiastically embraced free data offerings because of the considerable benefits.
Although net neutrality rules under Obama called for such plans to be reviewed on a case-by-case basis, SB 822 contains specific prohibitions that prejudge these offers and would take a choice away from millions of California consumers.
SB 822’s prohibition on zero-rated data would directly harm consumers, in particular Californians who can least afford to pay the price.
David W. Sosa is a Principal in the San Francisco office of Analysis Group, an economic consulting firm. He specializes in the economics of network industries and is the author of a recent CALinnovates study on streaming data in California. Reach him at email@example.com.