AT&T Sponsored Data Plan Worries Public Interest Groups

With its sponsored data service, companies will have the option of paying for delivery of any of their data that an AT&T wireless customer uses on the AT&T 4G network. An AT&T news release pitched the program as giving companies “the opportunity to better engage with customers and their own employees,” while giving customers the ability to access mobile content they want at no cost (http://soc.att.com/1cwSjaw). For instance, a customer could stream a sponsored video without it counting against the monthly data cap. It’s a “win-win for customers and businesses,” said Ralph de la Vega, CEO of AT&T Mobility.

Free Press called it a “lose-lose” for customers and app-makers. The service would bill Web content and app providers for their data used by its customers, but wouldn’t reduce users’ monthly bills, or increase their data caps for non-sponsored content, the group said in a statement.

"It’s definitely a win for AT&T,” but not necessarily for anyone else, said Matt Wood, policy director at Free Press. He likened the situation to the lack of pricing information consumers have when buying a car. When a salesman reduces the asking price by $2,000, customers don’t know if they're still being bilked. “Just like you don’t know how much the used car salesman really needs to make a profit,” Wood said, “we would like to look under the hood and explore those kinds of numbers” before “deciding whether it’s a win for customers.” The wireless net neutrality rules aren’t set up to handle such situations, Wood said. Nor is the FCC in a position to address it, since the agency has “boxed themselves out of that” given the way wireless services are classified, he said. Free Press will have to look at routes outside the FCC for now, he said, such as building more political pressure and educating consumers about what’s really going on.

Public Knowledge said this is just the latest example of how data caps are “increasingly becoming used to threaten the open Internet.” It’s not just a “ripoff” for consumers and content creators, but also “a massive barrier in front of anyone hoping to be the next big thing online,” said PK Acting Co-President Michael Weinberg in a written statement. Customers might be excited to find out that their favorite platform for streaming videos could be exempt from data caps, but “what about the next Netflix or Hulu?” a PK spokesman said. “People won’t seek out new platforms if there is a free option and in this world there won’t be new entrants. So from a consumer perspective, this limits choices. This gives those who can afford it the opportunity to reach current and new subscribers. As for everyone else, they would be left behind."

"I sure hope the ‘consumer’ groups don’t reflexively oppose this initiative with claims that it violates net neutrality, but I suspect they might,” said Free State Foundation President Randolph May. This is the type of new business model experimentation likely to benefit consumers, May said. “It is just a fact of economics that, ultimately, network infrastructure has to be paid for one way or another, and there is no reason for the government to dictate that the costs for network investment upgrades shouldn’t be paid for, at least in part, by the content and applications providers that are reliant on the network to reach their customers. Otherwise, consumers will just foot the bill through higher prices for their service plans."

These kinds of sponsored data plans are likely where the market is headed, said Medley Global analyst Jeffrey Silva. “The big question is how regulators view such arrangements in a broader policy context,” he said. “My guess is this is just the beginning of what could be a huge sponsored-data trend in the wireless space."

Verizon didn’t say whether it has similar sponsored data plans in the works. A T-Mobile spokesman declined to comment. Sprint, which offers unlimited data, said the announcement by AT&T “is another proof point of how important it is to Sprint to provide mobile users with a truly unlimited wireless experience.” It’s “a practice we take great pride in,” said a Sprint spokeswoman.

FCC’s net neutrality rules don’t ban sponsored data, said Paul Gallant of Guggenheim Partners in an analyst note. They're “fairly lenient” toward carriers working on new business models, he said. Gallant said he expected public interest groups would push the FCC to bar the plan on the grounds that it could harm innovation, which was the primary purpose of the net neutrality rules. But AT&T is likely to win that fight, especially since sponsored data essentially gives consumers more wireless service at no additional charge, he said. That’s an effective argument, he said, likely to lead the FCC to permit AT&T and other wireless operators similar sponsored-data arrangements. “Once some apps companies pay, others seeing traffic reductions may decide to follow suit,” Gallant said -- a positive “domino effect’ for the carriers.