John Delaney
John Delaney (Associate VP, European Telecoms)

Zero rating means that an operator does not charge its customers for network traffic when they use specific internet services. In their search for ways to build competitive differentiation in a mature market, mobile operators are increasingly attracted to zero rated data for popular services, despite concerns in some quarters about compatibility with net neutrality.

Several European mobile operators have announced such offerings, most recently:

There is clear potential to construe zero rating of mobile data as a violation of net neutrality, if the provider of the zero-rated service is paying the mobile operator. “Sponsored data” offers have sometimes fallen foul of regulation on these grounds. But the conflict between zero rating and net neutrality is less clear if there is no direct payment involved. Other factors can also make the compatibility of zero rating with net neutrality more debatable, such as when the operator can claim it is being introduced for network management, or when zero rating is for a limited period.

By bringing zero-rated data offers to market, European operators are not only using a powerful differentiator, they are also pushing regulators to rule more clearly on what is not allowed regarding zero rating, so that anything else can be taken as permitted. It is instructive, for example, to consider UK regulator Ofcom’s explanation of its decision not to block the zero-rated Facebook Messenger/WhatsApp offer launched by Virgin Media in late 2016. Relevant factors included Virgin Media’s market share, the limited likelihood that the offer will stop people using non-Facebook messaging services, and assurances from Virgin that it is seeking similar arrangements with other messaging service providers. (For fuller details, see page 9 of the Ofcom report Monitoring Compliance With The EU Net Neutrality Regulation.) It seems reasonable to conclude that Three and EE were emboldened by Ofcom’s ruling when they decided to introduce their own zero-rated offerings. EE, for instance, referred during the launch announcement for its Apple Music offer to being “open to other service providers.”

IDC believes that although national regulators do not seem minded to block zero rating per se on net-neutrality grounds, mobile operators still need to exercise caution when introducing zero-rated data. The tactic has inherent limitations. In most cases, we advise operators to introduce zero rating clearly as a limited-period promotional offer. That way, not only are operators less likely to fall foul of regulation, but they are also able to gauge the impact of zero rating on their networks, customers, and revenues before considering whether to extend the offer, or to make it permanent.

If you want to learn more about this topic, or have any question on European Mobility, please contact John Delaney.

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