Zero-rating and net neutrality: Time to look the gift horse in the mouth?

A controversial practice that has been outlawed in countries around the world, zero-rating is booming in Australia

Zero-rating — a practice that offers access to some Internet-based services without chewing up a user’s monthly data limit — looks set to hit Australia in a big way. At the end of last month, sponsored data app-maker Syntonic listed on the ASX with plans to open an office here before the year is out. A local launch of the company’s Freeway by Syntonic mobile app is “on the roadmap” with its CEO Gary Greenbaum calling 2016 “the year of sponsored data’”.

In April, Optus offered its prepaid mobile customers unmetered access to a raft of music streaming services such as Spotify, Pandora and Google Play. More and more ‘unmetered’ services are being offered on the web too as ISPs battle for market share. Depending on the provider, customers can binge on as much Netflix, Stan and Presto as they desire without denting their data or hitting a cap.

Sounds like a great deal for the consumer. But is it? Elsewhere the practice is proving controversial and countries are moving to limit its rise. Australia is increasingly an outlier in its lack of legislation.

Allowed to continue unfettered, zero-rating could be disastrous, say its opponents.


Zero-rating, sometimes referred to as sponsored data or toll-free data, is when mobile operators and internet service providers don’t charge customers for specific applications or online services.

Telstra, for example, allows its home broadband customers to use online streaming service Presto ‘unmetered’. “So you can watch as much as you want without using any home broadband allowance,” the telco’s marketing material explains.

Optus also offers its home broadband users unmetered access to Stan and Netflix, as does iiNet.

Zero-rating can be applied mobile data too. Freeway by Syntonic is a library of games, videos and services that users can use, within limits but without denting their mobile data which is paid for by the content provider.

Consumer choice?

In most cases, the services that are zero-rated by ISPs or telcos are determined in private deals. It is the most popular services with the most financial might that get the preferential treatment.

Tim Berners-Lee, inventor of the internet, argued in an open letter ahead of the European Parliament vote on net neutrality last year that “zero-rating lets carriers pick winners and losers by making certain apps more attractive than others… zero-rating hurts users, innovation, competition, and creative expression.”

When Netflix launched here in March last year, it participated in ‘unmetered’ programs with iiNet and Optus. But it’s now regretting that decision.

“In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not),” Netflix CEO Reed Hastings told shareholders in a Q115 statement.

“We should have avoided that and will avoid it going forward. ISPs should provide great video for all services in a market and let consumers do the choosing”.

Cheap deal

“If you think about what’s being offered – unmetered content, particularly video content as you see it taking up so much of our data – that’s actually great for us isn’t it?” says Megan Brownlow editor of PwC’s annual forecasting publication, The Australian Entertainment & Media Outlook.

Brownlow believes that as long as there are “protections in place for healthy competition”, zero-rating should be allowed to continue unrestricted.

“As long as we have proper robust institutions that have an eye out for us,” she says, “that are looking specifically at a healthy competitive landscape, as long as that’s in place then it’s better not to have special regulations.”

It’s a view supported by Syntonic’s CEO Gary Greenbaum: “The reason that there’s a debate around sponsored data is the belief it discriminates towards larger companies who have the means of paying for use over smaller companies.”

That’s not the case with Freeway by Syntonic, he says, pointing to an example of a small film studio that paid so users could watch a movie trailer without denting their data.

“It allows small companies the means of participating in new rich ways of growing new audiences,” he says.

Taking inaction

Other countries have taken action against zero-rating. The Netherlands has an explicit ban, as does Chile, India (following Facebook’s Free Basics effort), Japan, Slovenia and Canada. It is permitted but with (often complicated) restrictions in many other countries, including those in the European Union.

“As we look around the world, when [zero-rating] has raised alarm bells, it’s been because it’s been presented as not being healthy competition, working towards monopolies, or trying to shore up an early position to create a monopoly,” explains Brownlow.

“But I think that’s pretty unlikely in Australia because we’ve not had net neutrality enshrined here as they have in Europe or the US. As long as there are protections in place for healthy competition.”

There aren’t yet. Neither the ACCC nor ACMA has a firm line on zero-rating. Last year the ACCC heard from experts on the subject at its winter regulatory conference in Brisbane. One said Australia “seems like an outlier” on the subject (and net neutrality in general). Another urged regulators to “take a cautious approach”.

The ACCC confirmed its current thinking on the subject: “We are very interested in these issues and are continuing to monitor developments in this area.”

The absence of rules inspires innovation and more value for the consumer, says Brownlow: “I see it more as a positive then a risk or a fear.”

Berners-Lee argues that “economic discrimination is just as harmful as technical discrimination, so ISPs will still be able to pick winners and losers online.”

With sponsored data and unmetered access set to become even bigger, regulators may not be able to keep their distance for much longer.

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