FCC Pointlessly Concludes AT&T’s Free Data For ‘DirecTV Now’ Probably Violates Net Neutrality

The controversial Open Internet Order of 2015 (known on the street as “Net Neutrality”) is probably going to be rolled back or ignored under the incoming Trump administration, but with a few days left under the existing FCC leadership, the agency has decided to chime in with its conclusion that AT&T’s decision to not ding its wireless subscribers for accessing DirecTV Now streaming video probably runs afoul of regulations and may ultimately harm competition and consumers.

The Neutrality rules don’t take a fixed position on sponsored — or “zero-rated” — data programs, where someone other than the end-user pays for at least some of the wireless data they consume each month. In fact, the FCC has acknowledged that there may be pro-consumer benefits to certain programs, and has instead decided to take a case-by-case approach to determining whether specific zero-rated offerings comply with regulations.

Last month, the head of the Commission’s Wireless Bureau sent letters to AT&T and Verizon, expressing his concerns about DirecTV Now and Verizon’s FreeBee Data 360 sponsored data program, which allows content companies to pay for some of the wireless data their users consume on Verizon.

Those concerns were not allayed in the weeks since. According to the report [PDF] released today, AT&T provided no new information to back up its assertion that it offers its zero-rated data to third parties at the same rate that it charges to DirecTV.

The Commission had pointed out in the December letters that even though the dollar amounts might be the same, there is a net difference between money paid by a third party and money that merely transfers from one asset column in the AT&T ledger to another.

“[U]naffiliated mobile video service providers must pay a significant, clearly identifiable amount of money for the sponsored data needed to offer streaming video programming to AT&T Mobility’s subscribers on a zero-rated basis,” reads the report, “by comparison to AT&T, which need not incur a comparable out-of-pocket expenditure to offer DIRECTV Now on a zero-rated basis. Rather, any imputed ‘charges’ that DIRECTV ‘pays’ AT&T Mobility for sponsored data, even if formally recorded on the corporate books as internal transfer payments, would result in no net expenditure at the holding company level.”

The Bureau concludes, based on the little information it has received from AT&T that “Such arrangements likely obstruct competition for video programming services delivered over mobile Internet platforms and harm consumers by inhibiting unaffiliated edge providers’ ability to provide such service to AT&T’s wireless subscribers.”

In a statement posted on the always-thrilling AT&T Policy Blog, the company’s Senior Vice President of Federal Regulatory chastises the FCC for continuing to “question the value of giving consumers the ability to watch video without incurring any data charges. This practice, which has been embraced by AT&T and other broadband providers, has enabled millions of consumers to enjoy the latest popular content and services – for free.”

The Wireless Bureau drew similar conclusions with regard to Verizon’s program, which encompasses the reportedly disappointing (and horribly named) go90 streaming service.

While go90 is currently getting a lot less attention than DirecTV Now, the report notes that “there is the same potential for discriminatory conduct in favor of affiliated services,” along with the possibility that Verizon could mimic AT&T’s approach with DirecTV and apply it to wireless access to FiOS content.

The Commission has also looked at T-Mobile’s Binge On program, which doesn’t charge users for access to streaming video from a number of sources, so long as they are willing to accept a possible limit on video quality.

Since neither the end-user nor the content provider is required to pay anything to take part in Binge On, and since the program’s technical requirements for content companies is not overly burdensome, the Wireless Bureau concluded that it was very unlikely that T-Mobile is violating the rules as the service currently exists.

Also, since T-Mobile — unlike AT&T or Verizon — does not have any real streaming video service of its own, Binge On doesn’t raise the same issues of the wireless provider giving itself a possible unfair advantage.

While the Wireless Bureau report doesn’t censure, penalize, or even scold these companies, anti-regulation FCC Commissioner Ajit Pai has railed against the report, calling it “midnight regulation.”

“This report, which I only saw after the FCC released the document, does not reflect the views of the majority of Commissioners,” says Pai, glossing over the fact that there currently isn’t a political majority or minority on the FCC.

There are two Democrat Commissioners — Mignon Clyburn, and Chair Tom Wheeler — along with Pai and his fellow Republican Michael O’Rielly. A third Democrat, Jessica Rosenworcel, recently saw her term expire because the Senate refused to hold confirmation hearings. Wheeler has announced he will exit the FCC later this month, but until then there is an even split, politically.

Pai’s heated response to the report — which he dubbed a “regulatory spasm” — is tempered by his acknowledgment that it will “not have any impact on the Commission’s policymaking or enforcement activities following next week’s inauguration.”