The Federal Communications Commission says AT&T may be violating net neutrality rules by allowing DirecTV video to stream without counting against mobile data caps while charging other companies for the same privilege.
The FCC’s wireless bureau outlined its concerns in a letter sent to AT&T yesterday. AT&T owns DirecTV and “zero-rates” its video so that it doesn’t count against the data caps imposed on smartphones and other mobile devices. At the same time, AT&T charges other companies for the right to stream video or other media without counting against customers’ data caps. AT&T calls the charges “Sponsored Data.”
This is not a violation of the so-called “bright-line” net neutrality rules that ban throttling, blocking, and paid fast lanes. But the FCC’s Open Internet Order lets the commission stop other practices that harm competitors or consumers.
“AT&T seems to be ‘acting in ways that may harm the open Internet, such as preferring [its] own or affiliated content [and] demanding fees from edge providers,'” the FCC said, quoting from guidelines in the Open Internet Order.
The DirecTV data cap exemption, combined with AT&T charging competitors for data cap exemptions, “may obstruct competition and harm consumers by constraining their ability to access existing and future mobile video services not affiliated with AT&T,” the FCC said.
AT&T started exempting DirecTV streaming from mobile data caps in September.
AT&T argues that DirecTV pays for the right to bypass data caps, just as other companies do. But the FCC is not buying that argument, since DirecTV is owned by AT&T.
“The position that the participation of DirecTV in Sponsored Data is the same as that of third parties, however, fails to take account of the notably different financial impact on unaffiliated providers,” the FCC wrote. “For example, while there is no cash cost on a consolidated basis for AT&T to zero-rate its own affiliate’s mobile video service (since DirecTV’s ‘cost’ of Sponsored Data is equal to AT&T Mobility’s Sponsored Data ‘revenue’), an unaffiliated provider’s Sponsored Data payment to AT&T Mobility is a true cash cost.”
Based on confidential information provided by AT&T to the commission, the cost of zero-rating full-fledged video services on AT&T’s network could be “significant,” the FCC said. That could make it financially infeasible to compete against DirecTV Now, an upcoming $35-per-month streaming service, the FCC said.
Third-party video providers that don’t pay AT&T to bypass data caps “would likewise face a significant competitive disadvantage in trying to serve AT&T Mobility’s customer base without zero-rating,” the FCC said. The FCC asked AT&T to address the commission’s concerns.
AT&T will likely offer a formal response to the FCC later, but today the company said the DirecTV data cap exemption benefits consumers.
“AT&T and other broadband providers offer a service that lets consumers watch video without incurring any data charges,” AT&T said in a statement provided to Ars. “It makes it easier for consumers to say goodbye to their cable company. With our Data Free TV offer, DirecTV picks up the tab for our Mobility customers’ data use when they’re streaming content. For example, consumers can watch DirecTV content—such as NBC, Fox News, CBS, CNN, ESPN—all on their AT&T mobile devices without incurring any data changes.”
Other video providers can sponsor data on AT&T’s network “on equal terms at our lowest wholesale rates,” AT&T said.
The FCC could have prevented this scenario by blocking AT&T’s purchase of DirecTV last year or by imposing stronger conditions on the merger. When granting the merger, the FCC barred AT&T from exempting its own online video services from home Internet data caps that are applied to competitors, but that merger condition does not apply to mobile Internet data caps.
The FCC is sticking by its decision not to ban zero-rating entirely. In its letter to AT&T, the commission said, “Our concern is not with zero-rating per se… zero-rating-based business models may, in some instances, provide consumer and competitive benefits.”
AT&T may not have much to fear, since the FCC will be switched to Republican control once Donald Trump takes over the presidency on January 20. A Republican-led FCC isn’t likely to punish companies for net neutrality violations, especially in cases like zero-rating where there isn’t a concrete rule banning the practice. Republicans could also end up overturning the net neutrality rules.
At the same time, Trump’s presidency could be bad news for AT&T’s attempt to purchase Time Warner, the owner of HBO, CNN, and other programming. Trump promised to block the merger while he was campaigning.