Hill Reaction to AT&T ‘Sponsored Data’ Plan Will Be Limited, Experts Say

Other carriers “might be interested in waiting to see the political reaction to AT&T’s announcement” before deciding on introducing similar plans, but the pending ruling on Verizon v. FCC at the U.S. Court of Appeals for the D.C. Circuit is unlikely to “end up leading to a shutdown of sponsored data,” said Guggenheim Partners analyst Paul Gallant. The AT&T plan is “a practical example of what net neutrality advocates are concerned about, but the carriers would say it’s clearly pro-consumer,” he said. “Anything that feels like preferential treatment on the Internet will draw predictable support and opposition from all the usual suspects.” Other carriers’ actions will likely “depend in part on public reaction and on what various policymakers do,” said John Bergmayer, Public Knowledge senior staff attorney. “Not all carriers, though, have been as enthusiastic in pursuing this sort of approach as AT&T, however.” AT&T, Verizon Wireless, Sprint and T-Mobile US didn’t comment.

The other carriers “are no doubt happy to let AT&T face the fire first, but I wouldn’t be surprised to see similar programs,” said Doug Brake, Information Technology & Innovation Foundation (ITIF) telecom policy analyst. “We are already seeing competition in the mobile space on all different fronts; hopefully this will be one more practice carriers will differentiate over.” Free State Foundation President Randolph May said he would “be very surprised if AT&T’s program caused any meaningful adverse political reaction at all. ... I doubt consumers will be worried that programs like AT&T’s will inhibit the development of the next Google, Facebook, Netflix or whatever."

Eshoo said Monday that the net neutrality order “should apply equally to all forms of broadband Internet service.” AT&T’s program initially seems like “long-awaited relief from frustrating data caps,” she said, but criticized the program’s “serious implications for fairness and competition in the mobile marketplace,” which raise a question of the actual consumer benefits. Consumers “could ultimately foot the bill for the added cost of doing business,” Eshoo said.

House Communications Subcommittee Vice Chairman Marsha Blackburn, R-Tenn., pointed to the freedom businesses should have. “Businesses shouldn’t have to ask the FCC for permission to provide good services consumers demand in our dynamic and competitive environment for cell service,” she said. “Every company should have the opportunity to compete for consumers and the FCC should be limited to operating within the confines of its statutory authority. People want us to focus on jobs, not killing innovative business models before they're even tested.” Other lawmakers didn’t comment. Sen. Ed Markey, D-Mass., told us Tuesday that he hadn’t yet been briefed on the program details.

The Telecommunications Industry Association doesn’t see any immediate concerns with AT&T’s program or pushback from the Hill, said Danielle Coffey, TIA’s general counsel and vice president-government affairs. “While we strongly support consumers’ right to unfettered access to information over the Internet, the sponsored data program doesn’t appear to interfere with the users’ ability to access content or affect the quality of the content they receive,” Coffey said. She said she didn’t see the remarks so far from the Hill as any cause of great concern, so much as “just government keeping a watchful eye on whether such experimentation with business models rises to the level of concern over whether there is abuse in the market."

Hill May Remain Quiet

Don’t expect much further reaction from the Hill, said a communications lawyer. It’s clear FCC rules permit what AT&T is doing because net neutrality rules don’t apply to the wireless arena, and under the rules wired ISPs may even be able to do this as well, said the lawyer, who doesn’t represent AT&T. He doubted Congress would have any appetite for expanding net neutrality rules to cover such situations. If net neutrality advocates on the Hill attempt to introduce legislation that would expand net neutrality rules, “I think it’s unlikely to get very far,” ITIF’s Brake said. “There are a lot of reasons that these sorts of two-sided markets will be a big improvement over the current situation, and I think legislators and staff realize this."

AT&T may have “read the tea leaves” based on FCC Chairman Tom Wheeler’s Dec. 2 net neutrality speech “and decided this is something within his comfort zone,” Gallant said. Wheeler said he backed net neutrality but “if the facts and data determine that a market is competitive, the need for FCC intervention decreases” (CD Dec 3 p1). The net neutrality rules’ discrimination provisions don’t apply to wireless, but the blocking prohibitions do, said communications lawyer Andrew Lipman of Bingham McCutchen. “It’s harder to make a case for wireless today than wireline, but there could still be a discrimination issue,” he said. “The devil would be in the details in terms of what the terms and conditions are. The real focus could likely be on how companies who want to participate in this are treated when they offer products and services that overlap and are competitive with those of AT&T."

Advocates have said there’s a perceived uncertainty about how applicable the net neutrality rules are in the wireless space. Free Press and Public Knowledge say the rules weakly apply to the wireless space. The rules “already do extend to the wireless space, although in an unacceptably weak and watered-down form,” said Free Press Policy Director Matt Wood. “Our goal at Free Press isn’t to put everything into the framework of those existing rules. It’s to make sure the FCC uses its authority to monitor broadband data practices and proposals like this one, and then acts accordingly.” The FCC “does have the authority to act to stop anticompetitive acts,” Bergmayer said. “It’s too early for us to know what, if anything, we plan to pursue, but it should go without saying that we expect the FCC to take a close look at this.” The rules “explicitly recognized that the wireless sector is younger and more dynamic than wired broadband,” Brake said. “AT&T’s program doesn’t engage in any blocking, nor does its network treat non-sponsored data differently. In a lot of ways, this is exactly the type of experimentation the commission expected in the mobile space when it implemented its rules.”

Analysts’ Panel

AT&T’s plan to offer sponsored data to wireless customers could be a turning point for the wireless industry, analysts said on a Broadband US TV panel Wednesday (http://bit.ly/Kyrzg3). Such plans are likely to continue, analysts said, despite public interest group concerns that they're bad for consumers. An official at such a public interest group called AT&T’s plan a rip-off.

"This sponsored data will become a norm, and a major trend in the industry,” predicted Medley Global Advisors analyst Jeffrey Silva. AT&T’s plan doesn’t explicitly run afoul of FCC regulations, and FCC Chairman Tom Wheeler is unlikely to want to micromanage the industry, Silva said. If there are instances of anticompetitive activity with such arrangements, Wheeler would move with dispatch, Silva said. That’s distinct from looking to micromanage from the front end, he said.

In a few years, the industry might look back at sponsored data as a “turning point,” Gallant said during the panel. Sponsored data over wireless plans might be the first time since the beginning of the Internet that the phone and cable companies have been able to create a two-sided market, which they've always wanted, he said. Carriers make the big network investments but it’s the Googles and Netflixes of the world that get all the market capitalization, Gallant said. Sponsored data is an opportunity for cable and phone companies to start collecting new revenue, he said. “It’s the first step toward much greater opportunity for monetization of the Internet by the cable and phone companies."

It will be hard for public interest groups and others opposed to the sponsored data plans to stop this two-sided market, Gallant said. Carriers will be able to argue that the new money brought into the system by sponsored data, or network prioritization, can be invested into the network for faster speeds or to keep down retail prices for consumers, he said. “That’s appealing to congressmen and FCC people who answer to voters.” Potential quality of service deals with content companies, which might run afoul of FCC rules on the wireline side, could be OK in wireless because it’s a more competitive market there, he said.

AT&T’s sponsored data plan reminds Public Knowledge Senior Vice President Harold Feld of retransmission consent, he said. “Are we going to take retrans and now bring it into the Internet world, where the biggest companies are going to want to exact privileges for access to the carrier, and the smaller companies are going to get shoved to the side?” To Feld, AT&T’s new plan is a “rip-off” that implicates some net neutrality-like ideas, he said: “If you have a ferociously capped data plan” -- such as AT&T plans,capping at five gigabytes per month -- “it makes it very hard for shows like this [webcast] to compete with big companies that are going to sponsor data.” Some content such as video could be seen on AT&T’s LTE network under the sponsored data plan without being counted in subscriber monthly data limits. The real winner is AT&T, which gets to collect payments twice for the same data -- once from the consumers and once from the content providers, said Feld.

To NetCompetition.org Chairman Scott Cleland, sponsored data is a big win for consumers, who now get someone else offering to pay for consumers’ bills. “The consumer wins here,” said Cleland, also Precursor Group president. “They have somebody that wants to pay for their usage. This is what’s done all throughout the ecosystem. This is standard Marketing 101.” Feld’s concern over double dipping only makes sense from content-producer’s perspective, said Cleland, whose group includes AT&T and other cable and phone companies. “From the consumer perspective, this is a winner. They have somebody that out of the graciousness of their heart, wants to pay part of their bill.” Cleland likened sponsored data to other consumer-friendly advances like free shipping, or toll-free service. “I think the public interest community has picked the wrong fight,” he said.