Zero-Rating Compliance: Easy as Pai?

Recent upheaval at the Federal Communications Commission (FCC) has left broadband carriers and network operators in a state of cautiously optimistic uncertainty about zero rating -- the practice of allowing pre-existing customers free or discounted access to the provider's preferred video platforms and/or content.

Despite widespread net-neutrality doomsaying since President Trump's election and Ajit Pai's consequent ascendancy to the role of FCC Chairman, relatively little has emerged from Pai's FCC on net neutrality. While Pai -- with fellow Republican commissioner Mike O'Rielly -- is known for his opposition to the 2015 Open Internet Order ("2015 Order") championed by prior FCC Chairman Tom Wheeler, most of his tenure so far has been spent targeting other items, including procedural matters. Meanwhile, the legitimacy of the 2015 Order awaits potential review by the U.S. Supreme Court. (See Critics Not Pai-Eyed About New FCC Chair and Playing Politics at the FCC.)

On January 11 (nine days before Barack Obama passed the presidential baton to Donald Trump), the lame-duck Wheeler FCC's Wireless Communications Bureau issued a "Policy Review" concerning zero rating. The Policy Review came on the heels of post-election inquiry letters sent to major telcos, criticizing and raising questions about their respective zero-rating initiatives -- AT&T's DirecTV Now and Verizon's go90, in particular.

While the Policy Review (with the letters) noted that zero rating does not inherently violate the 2015 Order, it warned that zero rating would still be subject to "bright line" prohibitions against blocking, throttling, and paid prioritization (a.k.a., "Internet fast lanes"). It also emphasized that zero rating is subject to the 2015 Order's "General Conduct Rule" -- which allows for broad FCC oversight where end users' access is impacted. The rule is eponymously general -- accompanied by a "non-exhaustive list of factors to guide its case-by-case application and interpretation".

From there, the Bureau concluded that AT&T's DirecTV Now and Verizon's go90 (along their respectively underlying sponsored data programs) "may" violate the 2015 Order.

Pai promptly lambasted Wheeler for these "midnight" actions, stating that the Policy Review was released without his knowledge and did "not reflect the views of the majority of Commissioners." Two weeks after President Trump's inauguration, Pai's FCC rescinded the aforementioned letters and the Policy Review -- expressly proclaiming that the Policy Review and "any and all guidance, determinations, and conclusions contained therein, including the document's draft framework … will have no legal or other effect or meaning going forward."

With this predictable turn of events, it seems that these documents were issued merely for posterity.

"I think it's largely politics," Jonathan Marashlian, managing partner of DC-based communications-law firm Marashlian & Donahue, told Telco Transformation. "My view is that it was intended to set a marker that establishes what the Obama legacy wanted itself to be, so that any divergence from that by the Trump administration and the Pai-led FCC would have a marked contrast."

There is a more practical consideration, however: issue preservation.

"It's typical at the end of an administration that a lot of objectives get pushed through at the very last minute," noted Edward Maldonado, a Florida attorney who runs a communications-law practice, in a separate interview. "I think it was a warning shot. … [S]hould the FCC decide to take a particular action that may have an impact on those particular providers, it will be a reference point."

To wit, in a post-Trump, post-Pai Beltway, these documents may guide a future Commission's approach to zero rating -- and/or the General Conduct Rule overall.

"The conduct rule in the net-neutrality order was fairly amorphous," Paul Werner, a partner and litigator at DC law firm Sheppard, Mullin, Richter & Hampton, who represents clients on zero-rating matters, told Telco Transformation. "It was unclear to everyone who looked at it how those considerations would actually play out in the context of a concrete zero-rating offering. [The] Bureau's report was the first effort by the Commission to apply the conduct rule to a concrete application -- and it's the only thing out there now that offers some guidance, however limited at this point, about what may or may not pass muster."

Meanwhile, the 2015 Order is still on the books -- despite apparent non-enforcement, so far, of zero-rating matters. Non-enforcement is evanescent; undue reliance upon it can be risky.

"A violation of a Commission rule is a violation of a Commission rule so long as that rule is on the books -- even if there is no enforcement," said Marashlian. "Although there is every expectation that something might be done -- either by the FCC, or statutorily through Congress -- to pare back, scale back, or eliminate the net-neutrality regulations, for so long as [those regulations] exist, [operators] should be cautious in how they approach compliance."

Even the immediate regulatory future for zero rating remains hazy. Rescission of "midnight" actions notwithstanding, sponsored data plans could still ruffle FCC feathers. Both Pai and O'Rielly voted against allowing paid prioritization in 2014 (funnily enough, Wheeler and the other two Democrat commissioners voted in favor).

"I would say that zero-rating plans do not appear to be a point of emphasis for this Commission," offered Werner. "As long as [zero-rating services] are non-discriminatory … I think the main area of [FCC] concern would be any sort of zero-rated application that seems to favor vertically integrated content."

— Joe Stanganelli, Contributing Writer, Telco Transformation