DROPPED CALL

01.07.14

AT&T’s New “Sponsored Data” Scheme is a Tremendous Loss for All of Us

AT&T announced a new “sponsored data” scheme that lets content creators buy their way around the company’s data caps. It’s bad news for everyone—but AT&T.

Yesterday AT&T announced a new “sponsored data” scheme, offering content creators a way to buy their way around the data caps that AT&T imposes on its subscribers.  Although AT&T touted it as a “win-win for customers and businesses”, it is actually just a win for AT&T.  This plan is a tremendous loss for everyone else.

Going to the Heart of Net Neutrality

While people sometimes get lost in the details, at its core net neutrality is a pretty straightforward concept: it is the principle that the company that connects you to the internet does not get to control what you do on the internet.With its sponsored data scheme, AT&T is proposing to do just that.  AT&T’s relationship with a website, app, or service will control the way that AT&T’s subscribers interact with the internet.

AT&T is imposing its own tax on anyone who wants to connect to its millions of subscribers.  Of course, this tax is only attractive to content creators if AT&T’s normal service is too shabby to deliver their content without it.  That gives AT&T a big incentive to keep data caps low and overage fees high.

Who gets to innovate in a world where you need to pay AT&T to compete?  The answer? Established services that can afford to pass the fee onto customers.  That’s why net neutrality isn’t really about Netflix or Facebook.  They may not like it, but when push comes to shove they will probably pay AT&T’s tax and pass it along to their customers.  But the next Netflix or the next Facebook won’t be able to afford to do that at the start.  Startups will abandon any potentially “data-intensive” innovation to big players—a recipe for stagnation.  As more established services move to AT&T’s special lane, caps covering everything else may go down bringing the definition of data-intensive down with it.

AT&T is Creating Artificial Scarcity Just to Monetize It

AT&T has proudly moved past the days when the iPhone crashed its network for millions of excited subscribers.  In May of last year CEO Randall Stephenson told investors that AT&T anticipated reducing expenditures on its network and that data caps were really about charging content providers He repeated his confidence in AT&T’s network in December.

The sponsored data plan itself further highlights AT&T’s confidence in its network: if the network truly was fragile AT&T probably would not be inviting creators to dump a lot more content onto it.  Any problems in the network that exist going forward should be traced back to the fact that AT&T is investing in its special paid access lanes instead of the parts of the network available to everyone else. 

“The FCC’s strategy of closing its eyes, putting its fingers in its ears, humming, and pretending that data caps don’t exist needs to stop.”

Furthermore, even if AT&T is painting an overly rosy picture to investors and deluding itself about its network capacity, monthly data caps are an incredibly inefficient way to deal with momentary network congestion.

But they are a great way to gouge content creators.

Special Problems for Rural and Low-Income Communities

For many people wireless data caps are a frustration, but one they can work around.  Wired internet connections at home and at work give them plenty of uncapped internet access when they need it.  But for many others, wireless is their only way to connect to the internet.

In rural areas, 4G wireless connections are pitched as replacements for decommissioned wired internet connections, or as ways to affordably bring high-speed internet to hard-to-reach areas.  For these areas, capped wireless internet becomes their only option.

Similarly, many households in low-income communities do not have the luxury of purchasing two internet connections.  As a result, many of them are mobile-only internet users.

Both of these communities are under threat of being trapped in a second tier internet, pushed only to sites and services that can afford to pay their way around AT&T’s paywall.  For them, the “real” internet will start to leave them behind.

Where is the FCC?

In its Open Internet Order, the FCC detailed the problems that the sort of two-sided market proposed by AT&T creates such as inefficiently high fees, provider arms races, and overall reduced innovation.  Unfortunately, in the past two years the FCC has done nothing to understand the role that data caps can play in creating just such a market.  Even the FCC’s own Open Internet Advisory Committee admitted that it didn’t have enough information to begin explaining how data caps fit into the Order.

The FCC’s strategy of closing its eyes, putting its fingers in its ears, humming, and pretending that data caps don’t exist needs to stop.  AT&T, along with other ISPs, will continue to test the boundaries of the FCC’s stomach to protect an open internet.  If the FCC doesn’t push back then AT&T, like boundary pushers everywhere, will have no reason to stop.

And that’s a loss for everyone besides AT&T.