A blow against net neutrality: AT&T’s DirecTV Now service could trigger a sponsored-data arms race

The telecom giant's "zero rating" for streaming content it owns could signal the end of a level playing field

Published December 3, 2016 3:45PM (EST)

 (AP/Elise Amendola)
(AP/Elise Amendola)

AT&T unleashed this week one of the most ambitious TV streaming service yet, and one that has piqued the interest of millions of cord cutters who are fed up with satellite and cable service providers, high-priced programming bundles and cumbersome set-top boxes.

For an introductory offer of $35 a month, DirecTV Now’s “Go Big” 100-channel package gives subscribers access to ESPN and Fox Sports, cable news broadcasters CNN and MSNBC, basic cable channels like TNT and Discovery and popular programs like “The Walking Dead,” “Grey’s Anatomy” and “Empire,” all delivered to the digital screens of your choice. The company is also offering three larger bundles for up to $70 a month with programming from Univision, NBA TV and the Travel Channel. 

But critics of how AT&T is marketing DirecTV Now argue that America’s second-largest telecommunications company has just upped the ante in an ongoing effort to keep the Internet a level playing field.

AT&T gives its subscribers access to so-called sponsored data, meaning media companies pay extra so that AT&T’s customers aren’t using up monthly data-usage quotas for viewing their content. By offering customers this unlimited streaming (known as “zero rating”) of DirecTV Now programming through AT&T’s massive national broadband and wireless network, consumer rights advocates say AT&T gains a competitive edge against DirecTV Now’s rivals, like Sony’s Playstation Vue and Dish’s Sling TV, which depend on access to Internet infrastructure to deliver content to their subscribers.  

Further, if AT&T succeeds in its current $85.4 billion effort to acquire media conglomerate Time Warner, the telecom giant would have another competitive edge.

By owning a considerable amount of the programming DirecTV Now offers — including CNN, HBO and Warner Bros. movies — DirecTV can extend unlimited “zero rated” streaming without having to negotiate deals with third-party providers for episodes of “Game of Thrones,” CNN breaking news broadcasts, the “Batman” film franchise and other popular Time Warner content. While AT&T argues that it charges DirecTV the same as it does others to access its wireless and broadband network, it owns DirecTV -- essentially taking money out of one of AT&T’s pockets and putting it in another.

AT&T’s strategy could also spark other Internet service providers to follow suit, creating a wireless market where customers would be forced to choose unlimited streaming for some programming while other content would count against their monthly data limits. Subscribers would naturally gravitate to the unlimited streaming content, fearing they would be hit with data overage fees or slower connections toward the end of their monthly pay cycle.

This, say consumer advocacy groups, undermines the hard-fought rules on net neutrality in which all Internet content is supposed to be treated equally.

“When you zero-rate things, people are much more likely to use the zero-rated service,” Harold Feld, senior vice president of Public Knowledge, a Washington, D.C.-based consumer advocacy group, told Salon. “This also triggers an arms race. Comcast, for example, could implement zero rating for its content and make it more expensive for people to go to other content.”

Feld also points out that smaller media startups could be shut out of zero rating access if they can’t afford to pay for it. Some, like Netflix, could wind up having to charge their users higher fees for access to unlimited streaming by Internet service providers.

AT&T says its model is good for consumers because they don’t have to worry about burning through their monthly data usage limits when they watch TV shows and movies on their smartphones and tablets. AT&T bought DirectTV, the nation’s largest pay-TV provider, last year for $48.5 billion in an effort to diversify from its traditional mobile communications business.

AT&T and other broadband providers "offer a service that lets consumers watch video without incurring any data charges,” Bob Quinn, the company’s head of external and legislative affairs, said in a press statement earlier this month. “These are incredibly popular services that we hope regulators won’t take away from the millions of people who enjoy them today.”

Jonathan Schwantes, senior counsel at Consumers Union, the policy action division of Consumer Reports, says that zero rating has problems similar to the ones that net neutrality rules passed last year by the Federal Communications Commission (FCC) were aimed at fixing.

“Zero ratings is attractive to consumers, but it has a lot of downstream effects,” Schwantes told Salon. “A big part of net neutrality is the non-discrimination of content, but it’s also about not having paid prioritization of content on the Internet. But here you have an end-around [net neutrality] with zero rating.”

Net neutrality rules — implemented by the FCC last year after intense lobbying against them by Internet service providers — were aimed at preventing ISPs from charging Web-based producers higher fees for faster connections, creating a two-tiered Web: a fast one for cash-flush content providers, like corporate and government websites, and a slower one for everyone else, like small nonprofit organizations and bloggers.

Consumer advocates are saying that AT&T appears to be skirting net neutrality rules with its sponsored-data strategy. The FCC may be taking their side.

“Unaffiliated video providers not purchasing Sponsored Data would likewise face a significant competitive disadvantage . . . without zero rating,” the FCC said in a letter submitted to AT&T earlier this month requesting more information about DirecTV Now’s exemption from AT&T’s data caps.  

For everyone tracking this issue, the big question is how the the FCC and Justice Department will deal with it under President Donald Trump and a Republican-controlled Congress. On the campaign trail this summer, Trump said he strongly opposed the AT&T-Time Warner merger, calling it “too much concentration of power in the hands of too few.” But as president-elect, Trump appears to be picking a team that seems friendly to corporate consolidation and critical of net neutrality rules.

His antitrust team includes former federal trade commissioner Joshua Wright, a Republican who has dismissed the notion that mergers automatically lead to higher prices and less competition. Trump has also picked Roslyn Layton, Jeffrey Eisenach and Mark Jamison to head up his FCC transition team; all three have spoken out against net neutrality.

Feld from Public Knowledge said this isn’t surprising.

“Now that Trump is in, he doesn’t have to be as populist as he was on the campaign trail,” he said.

Trump’s picks appear to bode well for AT&T’s efforts, much to the dismay of net neutrality supporters.

By Angelo Young

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