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FCC head Ajit Pai: You can thank me for carriers’ new unlimited data plans

But there are good reasons to believe he’s wrong.

Federal Communications Commission Chairman Ajit Pai today said his “light-touch” approach to regulation is already helping consumers in the form of unlimited smartphone data plans from major US carriers. And he predicted that getting rid of “utility-style regulation” over broadband providers will boost Internet access across the US.

Pai, a Republican and ex-Verizon lawyer who was appointed FCC chair by President Donald Trump, made his case in a speech today at Mobile World Congress in Barcelona, Spain (full text). Just before touting the recent expansion of unlimited data plans, he discussed his decision to end an investigation into data cap exemptions, also known as zero-rating. Pai’s FCC rescinded the commission’s previous determination that AT&T and Verizon Wireless violated net neutrality rules by exempting their own video services from data caps while charging other providers for the same zero-rating treatment.

This decision, Pai said, led to a surge in unlimited data offerings:

Earlier this month, for example, we ended the FCC’s investigation into so-called “zero-rating,” or free data offerings. Free data plans have proven to be popular among consumers, particularly those with low incomes, because they allow consumers to enjoy content without data limits or charges. They have also enhanced competition. Nonetheless, the FCC had put these plans under the regulatory microscope. It claimed that they were anti-competitive, would lead to the end of unlimited data plans, or otherwise limit online access. But the truth is that consumers like getting something for free, and they want their providers to compete by introducing innovative offerings. Our recent decision simply respected consumers’ preference.

The best evidence of the wisdom of our new approach is what happened afterward. In the days following our decision, all four national wireless providers in the United States announced new unlimited data plans or expanded their existing ones. Consumers are now benefiting from these offers—offers made possible by a competitive marketplace. And remember: Preemptive government regulation did not produce that result. The free market did.

Data cap exemptions don’t matter on unlimited data plans

There are, however, reasons to think that the FCC’s zero-rating decision was not responsible for the new unlimited data offerings. For one thing, selling unlimited data harms the business case for paid data cap exemptions. If carriers don’t limit the amount of data mobile customers can use each month, there’s no reason for online content providers to pay the carriers for zero-rating. While data caps are hated by customers, they create a scarcity that can be monetized by carriers as long as the FCC allows paid zero-rating.

Secondly, there were already unlimited data plans before Pai became chairman. T-Mobile USA introduced its “T-Mobile One” unlimited plan in August 2016, while Democrat Tom Wheeler was still FCC chairman and the FCC was pursuing its net neutrality investigation into zero-rating. Sprint was already selling unlimited data and so was AT&T (although AT&T’s unlimited data was only available to DirecTV and U-verse TV customers).

In other words, three of the four major carriers were selling unlimited data plans before Trump won the presidential election. Despite the investigation into zero-rating, there was already a business case for unlimited data plans. The big change that happened this month is Verizon Wireless offered unlimited data to new customers for the first time since 2011.

Verizon’s resurrection of unlimited data on the network rated #1 by testing firm RootMetrics forced the other carriers to step up their games. AT&T opened its unlimited data plan to all customers and lowered its price to $90 while adding 10GB of high-speed tethering. T-Mobile added HD video and 10GB of tethering to its $70 plan, and Sprint made similar changes to its $50 plan.

The most obvious explanation for Verizon introducing an $80 unlimited plan is that it was feeling competitive pressure from T-Mobile’s unlimited offer. Though Verizon remains the biggest US carrier, its wireless revenue and income declined in 2016, and its customer base grew at a slower rate than the previous year. T-Mobile’s latest earnings report showed stronger customer growth than Verizon along with a 23 percent increase in quarterly revenue and 31 percent increase in net income.

AT&T and Verizon could still end up making plenty of money from zero-rating because the carriers continue to offer limited plans at lower prices than their unlimited offerings. But expanding the availability of unlimited data seems likely to reduce their financial opportunity from paid data cap exemptions. Pai did not offer any detailed explanation for why ending the zero-rating investigation would lead to an expansion of unlimited data.

Pai could eventually face a decision that would change the competitive balance of the US wireless market. While the Obama administration refused to allow a merger of T-Mobile with AT&T or T-Mobile with Sprint, a T-Mobile/Sprint merger is starting to look more likely under the Trump administration. The FCC could be asked to approve a merger that would reduce the number of nationwide wireless carriers from four to three.

Pai: Strict regulation reduces network investment

In his five years on the FCC, Pai has consistently opposed net neutrality rules that prohibit ISPs from blocking or throttling traffic or giving priority to Web services in exchange for payment. A February 2015 rulemaking that he opposed reclassified ISPs as common carriers under Title II of the Communications Act, using that legal authority to impose the net neutrality rules.

Pai today argued that this “utility-style regulation” has depressed broadband investment. “After the FCC embraced utility-style regulation, the United States experienced the first-ever decline in broadband investment outside of a recession,” he said. “In fact, broadband investment remains lower today than it was when the FCC changed course in 2015. And we have seen much concern about whether the FCC would permit or ban service plans.”

Wheeler put a different spin on the same numbers shortly before leaving the commission, saying that “a recent report pegged overall network investment at $76 billion for 2015, which is an increase from the year I arrived at the commission.” That report, by the USTelecom industry lobby group, said that the $76 billion investment level in 2015 was $1 billion lower than in 2014 but $1 billion higher than the $75 billion investment in 2013 when Wheeler became FCC chair.

AT&T CEO Randall Stephenson recently said in an earnings call that Title II regulation is “suppressing capital investment.” On the other hand, Verizon CFO Matt Ellis said in an earnings call that “our investments aren’t focused on just who happens to be in office today. We’re making investments that are for 10-plus years and I think our record stands for itself, that irrespective whoever the administration is run by and the regulatory regime, that we are effective.”

What’s not in dispute is that Pai intends to get rid of Title II regulation of broadband providers. The “light-touch approach to regulation that produced tremendous investment and innovation” for two decades was abandoned when the FCC reclassified ISPs under Title II, Pai said today.

“The torch at the FCC has been passed to a new generation, dedicated to renewal as well as change,” he said. “We are confident in the decades-long, cross-party consensus on light-touch Internet regulation—one that helped America’s digital economy thrive. And we are on track to returning to that successful approach.”

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