Net neutrality is under fire again with AT&T’s announcement to stream DirecTV content to AT&T mobile customers without having it count against the data cap. The FCC already gave tacit approval of T-Mobile’s zero rating scheme—Binge On, and now AT&T is upping the ante by offering to stream content from DirecTV—which AT&T owns—for free while charging other sites and services for the same privilege.
The mental gymnastics AT&T (and T-Mobile) rely on to justify flaunting Net Neutrality is a supposed loophole called “zero rating”. The argument, essentially, is that AT&T is not in any way impeding or throttling content from other providers. It isn’t charging tolls or demanding fees from content providers. It’s simply offering content from its own network—DirecTV—without having that content count against the data cap.
At first glance that might seem legitimate. The reality, however, is that it is the exact same thing as throttling the other content providers or charging tolls. It’s just done in a way that circumvents the letter of the Net Neutrality rules while giving the middle finger to the spirit of the Net Neutrality rules, the FCC, and American consumers.
T.C. Sottek explains in a post on The Verge that the line is blurred between mobile providers, ISPs, and content providers—especially as the major mobile providers and major ISPs are one and the same, and they’re all buying media companies of their own. “They’re using the same playbook: turn the internet into basic cable, and charge everyone for features and content on top of that. Then, charge competitors to compete with their own vertically integrated video services. It’s a two-way toll that ISPs have been trying to erect forever.”
Aside from brazenly circumventing the authority of the FCC, these zero rating schemes are bad for two reasons. First, it starts to create islands of service and content that lock customers in. An AT&T customer can stream DirecTV for free—and probably HBO shows like Game of Thrones if and when the AT&T acquisition of Time Warner is completed. If that AT&T customer wants to switch mobile service to Sprint, or drop DirecTV in favor of Comcast, it has repercussions that impact mobile service, internet service, and content delivery—all of which make the economics and math behind such a switch harder to make sense of as well.
The other concern—which is actually a much larger issue—is that zero rating (and by extension the violation of Net Neutrality in general) creates a situation where innovation and competition are stifled. Large content providers like Netflix and YouTube can afford to pay tolls and fees to ensure their content is given priority treatment, but a new startup that wants to compete with Netflix or YouTube would be at an unfair competitive disadvantage because its content would be a second-class citizen—delivered over a slower connection, or counting against the data cap, or both.
Jon Wilkins, chief of the FCC Wireless Telecommunication Bureau, sent a letter to Robert Quinn, Jr. at AT&T seeking clarification. Wilkins says, “I am writing to express serious concerns about the impact of AT&T Mobility’s “Sponsored Data” program on competition for mobile video services.”
Wilkins clarifies and expands on those concerns, stating that the terms and conditions under which the Sponsored Data program is offered to unaffiliated third-party content providers, combined with the practice of zero rating DirecTV for AT&T customers may obstruct competition and harm consumers by limiting access to existing and future mobile video services.
I asked AT&T to comment on the zero rating scheme and the concerns of the FCC. An AT&T spokesperson shared with me the letter sent to the FCC in response, and cited a specific section of the letter in which AT&T claims to faithfully adhere to the 2015 Open Internet Order and Title II jurisprudence.
AT&T stresses, “In the Order, the Commission recognized that sponsored data programs can offer significant benefits to consumers and competition, including: increasing choice and lowering costs for consumers, enabling edge providers to distinguish themselves in the marketplace and tailor their services to consumer demands, and promoting the virtuous circle of innovation and investment. It acknowledged that some had argued that such arrangements could distort competition, and therefore cautioned that they should be non-discriminatory. And so, consistent with decades of Commission precedent, AT&T made its sponsored data program available to all content providers on the same terms and conditions.”
The FCC calls into question whether DirecTV “paying” AT&T to participate in the Sponsored Data program is the same as a third-party content provider, since it’s sort of a wash to AT&T while it’s an actual expense for other participants. AT&T claims that there is a financial impact as AT&T will have to eat the cost of investing to expand network capacity as a result of demand for DirecTV streaming.
Even if we accept that as a rationalization for how there’s a more or less level playing field with other content providers like Netflix or YouTube, it doesn’t change the fact that it stifles innovation because small startups that might wish to compete with Netflix or YouTube lack the resources to pay for something like the Sponsored Data program, so they’ll be at a competitive disadvantage by default.
An FCC spokesperson confirmed that the agency has received the response from AT&T and is reviewing it before determining what the next steps are.
