AT&T and Verizon are violating net neutrality principles by exempting some companies' video streams from consumers' data caps, outgoing Federal Communications Commission Chairman Tom Wheeler told lawmakers this week.
The carriers' zero-ratings initiatives -- which AT&T calls "sponsored data" and Verizon calls "FreeBee Data 360" -- "present significant risks to consumers and competition," Wheeler said in a letter to lawmakers.
"These sponsored data offerings may harm consumers and competition by unreasonably discriminating in favor of downstream providers owned or affiliated with the network providers," Wheeler continued.
His letter comes almost two months after Democratic Senators Ed Markey (Massachusetts), Ron Wyden (Oregon), Al Franken (Minnesota), Bernie Sanders (Vermont), Elizabeth Warren (Massachusetts), Richard Blumenthal (Connecticut) and Tammy Baldwin (Wisconsin) urged the FCC to definitively state that broadband providers violate net neutrality by zero-rating their own content, or unaffiliated content, but excluding competitors.
The net neutrality rules broadly prohibit carriers from engaging in conduct that hinders the ability of consumers and content companies to reach each other online. When the FCC published those rules, it said it would take a case-by-case approach to evaluating whether data caps -- and exemptions from them -- are harmful.
AT&T pioneered "sponsored data" in 2013, when it allowed companies to pay for their data to be exempted from consumers' monthly caps. Since then, other Internet service providers -- both wireless and wireline -- have launched their own versions of zero-rating services.
AT&T also now allows wireless customers who purchase DirecTV to watch video through a mobile app, without counting those streams against customers' data caps.
Last January, Verizon rolled out FreeBee Data, which lets companies arrange for their mobile content to be zero-rated. The company also zero-rates video streamed from its Go90 mobile app.
T-Mobile -- which still has some subscribers who pay for data by the byte -- also zero-rates video from numerous companies through its "Binge On" program. T-Mobile doesn't charge companies to participate in Binge On.
Consumer advocates have raised concerns about all three programs, but the FCC only views the offerings by AT&T and Verizon as problematic.
"Unlike T-Mobile, which charges all edge providers the same zero rate for participating in BingeOn, AT&T imposes hefty per-gigabyte charges on third parties for use of Sponsored Data," Wheeler tells lawmakers. "The structure of Verizon's FreeBee Data 360 program raises similar concerns."
AT&T's program is particularly troubling to the FCC, because DirecTV offers full-length video. "DIRECTV Now may be more likely to be viewed by mainstream consumers as a substitute for, and thus a direct competitor to, major providers of video programming delivered over the Internet -- such as Netflix, Amazon Prime, Sling TV, or Hulu," the FCC's Wireless Bureau said in a separate report released this week. "It is less likely that as many consumers would view the existing version of go90 as a serious competitor to those services."
Despite the critical report, the carriers aren't likely to change their approach, given that the FCC will soon have a Republican majority; the two existing Republican commissioners have already vowed to repeal the net neutrality laws.
AT&T senior vice president Joan Marsh has already responded to the FCC's report by contending that the company's zero-ratings scheme favors consumers. "It remains unclear why the Wireless Bureau continues to question the value of giving consumers the ability to watch video without incurring any data charges," Marsh blogged. "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. We hope the government continues to support a competitive marketplace that lowers costs and increases choice for consumers.”