FCC Has “Serious Concerns” About AT&T Exempting DirecTV Video From Mobile Data Caps

Image courtesy of C x 2

In September, AT&T announced that it would not charge streaming DirecTV content against wireless customers’ monthly data caps. It’s a controversial practice known as “zero-rating” that some believe has anticompetitive effects, especially when the content company is owned by the wireless provider. It’s an issue the FCC has not yet ruled on definitively, but one that the Commission says may be cause for concern.

There are other zero-rating arrangements out there, with wireless providers not dinging customers’ accounts for accessing certain types of content, but the AT&T/DirecTV arrangement has drawn scrutiny because the two companies recently merged. Some detractors contend that DirecTV is getting an unfair advantage over other pay-TV providers whose subscribers can not enjoy this cap-exempt streaming.

Currently, this zero-rating is only available to customers of DirecTV’s satellite service, but it’s believed that the arrangement will expand to the soon-to-launch DirecTV Now standalone live-TV streaming service that will not require a separate pay-TV subscription. The few competitors in this field — most famously Dish’s Sling TV and Sony’s PlayStation Vue — do not have similar arrangements with AT&T.

This week, Jon Wilkins, head of the FCC’s Wireless Telecommunication Bureau, sent a letter [PDF] to AT&T, to voice “serious concerns” that the DirecTV zero-rating deal “may obstruct competition and harm consumers by constraining their ability to access existing and future mobile video services not affiliated with AT&T.”

Wilkins notes that the FCC does not currently have any problems with the idea of zero-rating. In fact, last November FCC Chair Tom Wheeler stated that such arrangements between content companies and broadband providers could be “innovative” and “highly competitive.”

The letter acknowledges that AT&T has claimed that DirecTV is not getting a free ride on this zero-rating deal, and that the pay-TV company is apparently compensating AT&T’s wireless division for this data at the same rate that any other content provider would if they were to join AT&T’s Sponsored Data program.

However, Wilkins worries that AT&T “fails to take account of the notably different financial impact on unaffiliated providers.”

In other words, it’s a zero-sum game for AT&T as a whole, with the compensation merely shifting from one division to another. Whereas, if BobsStreamingVideoDeluxe.horse makes a zero-rating deal with AT&T, that money is being transferred between two completely separate companies (at least until AT&T CEO Randall Stephenson sees how awesome BobsStreamingVideoDeluxe.horse is and acquires it for $16 billion). This is a real cash cost that DirecTV does not experience, contends Wilkins.

AT&T has around one-third of the U.S. wireless market, and there are over 20 million DirecTV customers, so there are probably around 7 million DirecTV subscribers who are also AT&T wireless users. It may be higher than that, given the cross-promotion efforts the two brands have made since the merger.

DirecTV Now will be available to anyone in the U.S., including the 100 million or so AT&T wireless customers. At a reported $35/month for a wide swath of cable channels, it could attract subscribers in the way that Sling TV — with its limited content offerings — or PS Vue — with its higher price, and complicated tiers — have not.

Given the potentially huge bill for zero-rating all of these DirecTV services, and the fact that DirecTV isn’t really spending Wilkins questions whether anyone else will be able to afford a similar zero-rating deal.

“Indeed, it is not difficult to calculate usage scenarios in which an unaffiliated provider’s Sponsored Data charges alone could render infeasible any third-party competitor’s attempt to compete with the $35 per month retail price that AT&T has announced for DIRECTV Now,” he writes.

Consumers are becoming increasingly savvy about their data consumption, and the fact that one streaming service counts against your data plan while another one does not may factor into their decsion about which one to purchase. Similarly, if your favorite streaming service is exempt from data caps on a wireless provider other than the one you’re currently using, that may be reason to switch.

Federal regulations prohibit broadband providers from unreasonably interfering with or disadvantaging users’ “ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice.”

Wilkins says that AT&T may be committing the sort of anticompetitive practices that caused the FCC to create such rules.

“The Sponsored Data charges imposed on unaffiliated edge providers appear to ‘target competitors, including competitors to their own video services,'” he writes, “which the 2015 Open Internet Order characterized as being of particular concern for potentially disrupting the virtuous cycle of competition and innovation in Internet services.”

The FCC has given AT&T until Nov. 21 to respond, but in a statement emailed to Consumerist, the company defends its practices.

“While we welcome additional questions, we hope the FCC will consider the enormous value consumers find in obtaining free data or free streaming where someone else is footing the bill for their data,” reads the statement. “We welcome any video provider that wishes to sponsor its content in the same ‘data free’ way for AT&T Mobility customers and we’ll do so on equal terms at our lowest wholesale rates. Saving consumers money is something we all should support.”

In semi-related news, AT&T announced today that it will launch a free feature dubbed “Stream Saver” in Jan. 2017 that allows wireless users to choose whether they want to watch streaming video at full resolution or save on data use by opting to watch video at a quality closer to standard definition.

[h/t Ars Technica]