Sponsored Data, Net Neutrality, and the 1st Amendment
The Federal Communications Commission has recently turned its attention to the sponsored data services (or zero rating) offered by Internet Service Providers. As the FCC explained in its Open Internet Order, these free data services allow ISPs to exclude certain content from their customers’ usage allowances on usage-based plans. Although some have criticized sponsored data services as a form of harmful discrimination, others have explained the reasons why consumers benefit from free data services and how edge providers can differentiate themselves and encourage use of their services by sponsoring their customers’ data charges. Lost in this debate is the threshold question whether the FCC even has the authority to regulate sponsored data services. The truth is that many of these sponsored data services are exempt from the FCC’s net neutrality rules and protected by the First Amendment.
Sponsored data services seem to be all the rage these days. Verizon, AT&T, and T-Mobile have all announced plans to zero rate certain content, which won’t count against their users’ data allowances. For example, T-Mobile’s Binge On and Music Freedom allow users to access video and music streaming services without worrying about exceeding their data allowances. In addition, Facebook offers a service called Free Basics, which provides billions of people around the world with free access to basic websites. In some cases, the ISP chooses which content to sponsor; in other cases, it is the edge provider choosing which content to sponsor.
Although it is difficult to understand why anyone would complain about free data, the FCC found in the Open Internet Order that the record was mixed about sponsored data services. “On the one hand, evidence in the record suggests that these business models may in some instances provide benefits to consumers” by increasing choice and lowering costs, and they may also “benefit edge providers by helping them distinguish themselves in the marketplace and tailor their services to consumer demands.” On the other hand, net neutrality activists oppose sponsored data services, arguing that “the power to exempt selective services from data caps seriously distorts competition, favors companies with the deepest pockets, and prevents consumers from exercising control over what they are able to access on the Internet.”
Despite concerns about “allowing service providers to pick and choose among content and application providers to feature on different service plans,” the FCC recognized that these “new service offerings, depending on how they are structured, could benefit consumers and competition.” The FCC stated that it “will look at and assess such practices under the” Internet conduct rule, “based on the facts of each individual case, and take action as necessary.” The FCC recently invited several ISPs to explain to agency officials how their sponsored data services comply with the net neutrality rules.
Net Neutrality Rules
In addition to bright-line rules against blocking, throttling, and paid prioritization, the FCC also adopted an Internet conduct rule, which prohibits ISPs from unreasonably interfering with or unreasonably disadvantaging Internet content, applications, and services.
Like all of the net neutrality rules, the Internet conduct rule applies to ISPs only “insofar as” they are “engaged in the provision of broadband Internet access service.” The FCC defines broadband Internet access service as a “mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints.” Practices “in connection with broadband Internet access service . . . are not directly governed by” the net neutrality rules.
Data services that do not meet the definition of broadband Internet access service are also exempt from the net neutrality rules. As the FCC explained in the net neutrality appeal, the rules “would not apply to a hypothetical company that advertised ‘filtered’ Internet access catering to a particular audience or that offered access only to curated content” because the ISP would not be providing the ability to reach large parts of the Internet. The FCC later explained during oral argument that the rules do not apply to ISPs that choose to “curate” or “filter” the Internet because “that would drop them out of the definition of broadband Internet access service.”
Sponsored Data is Exempt from the Net Neutrality Rules
The FCC’s suggestion that it could regulate sponsored data services is premised on the erroneous assumption that these services are within the scope of the net neutrality rules. In fact, many of these sponsored data services are exempt from the net neutrality rules because they are not broadband Internet access services.
Unlike broadband Internet access services, sponsored data services generally do not offer consumers the capability to transmit data to and receive data from all or substantially all Internet endpoints. Although each plan is different, sponsored data services often select only a limited amount of Internet content to offer for free. For example, some ISPs choose to limit their free data services to streaming videos from services like Netflix and ESPN, while others choose to sponsor streaming music from Spotify and Pandora. Customers cannot use the ISP’s sponsored data service to obtain free access to all other Internet content. The customer must use their broadband Internet access service—and incur data charges—to reach Internet content that is outside the scope of the free data service. Sponsored data may be offered in connection with the ISP’s broadband Internet access service, but the ISP’s free data service is not subject to the net neutrality rules because it is not broadband Internet access service.
It makes perfect sense why many sponsored data services should be exempt from the net neutrality rules. Net neutrality advocates fear that ISPs will manage the traffic on their networks in an unreasonable or discriminatory manner. But ISPs do not need to engage in any network management techniques to provide free data to their customers; they simply do not count the sponsored data against their customers’ data allowances.
Sponsored Data is Protected by the First Amendment
Many sponsored data services are not only exempt from the net neutrality rules, they are also protected by the First Amendment. The FCC, however, has long maintained that ISPs are not entitled to the protections of the First Amendment because they do not engage in speech. The FCC must rethink this approach when it comes to sponsored data services because many ISPs—and edge providers—engage in First Amendment activity by exercising editorial discretion over which content to sponsor.
The First Amendment protects the curation of content. In Turner Broadcasting System, Inc. v. FCC, the Supreme Court held that “[c]able programmers and cable operators engage in and transmit speech, and they are entitled to the protection of the speech and press provisions of the First Amendment.” A cable operator is entitled to First Amendment protection because it “exercise[s] editorial discretion over which stations or programs to include in its repertoire.’”
Many ISPs and edge providers engage in similar First Amendment activity by exercising editorial discretion over which Internet content to offer for free. For example, an ISP engages in editorial discretion when it chooses to sponsor a certain category of content, from video streaming services to music streaming services. An ISP may also wish to sponsor all sports websites like ESPN.com, news websites like CNN.com, or health websites like webmd.com. The ISP selects this type of content because it appeals to their customers and helps the ISP distinguish itself among its competitors. Selecting which type of content to sponsor is First Amendment activity just like a cable company offering different cable packages that appeal to different customers interested in sports, news, or family entertainment.
The FCC admitted as much during the net neutrality oral arguments. Responding to the argument that the net neutrality rules stifle ISPs’ free speech, the FCC explained that the rules do not apply to companies that choose to “curate” or “filter” the Internet because “if they’re selecting the programming they may look more like a cable operator.” Tr. 123-24, 130. Selecting the programming to sponsor for their customers is exactly what many ISPs and edge providers do when they choose which type of Internet content to offer for free. It is First Amendment activity protected from government regulation.
The FCC should tread lightly when it comes to sponsored data plans. Many of these free data services are not even covered by the net neutrality rules, and they are protected by the First Amendment because ISPs and edge providers often curate content when they choose to provide certain types of content for free. There is no sound policy or legal basis for the FCC to interfere with these innovative and consumer-friendly plans.
 Daniel Lyons, Zero rating: Narrowing the digital divide in the mobile broadband market, TechPolicyDaily.com (Jan. 12, 2015), at http://www.techpolicydaily.com/internet/zero-rating-narrowing-digital-divide-mobile-broadband-market/.
 Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, ¶ 151 (2015) (“Open Internet Order”).
 Id. ¶152.
 Brian Fung, Regulators want to talk to AT&T, Comcast and T-Mobile about sponsored data, Wash. Post (Dec. 17, 2015), at https://www.washingtonpost.com/news/the-switch/wp/2015/12/17/regulators-want-to-talk-to-att-comcast-and-t-mobile-about-sponsored-data/.
 Open Internet Order ¶ 136.
 Id. ¶ 187.
 Id. ¶449.
 Id. ¶ 208.
 FCC Br. 145 n.53, USTelecom v. FCC, No. 15-1603 (D.C. Cir.).
 Even if the net neutrality rules apply, it is dubious whether an ISP that allows an edge provider to sponsor content would even violate the Open Internet rules.
 Open Internet Order ¶ 544.
 512 U.S. 622, 636 (1994).