FCC: Verizon and AT&T 'zero-rating' perks harm consumers

Tom Wheeler may be leaving, but he's going out swinging. After grilling carriers Verizon and AT&T last month over their "zero-rating" policies, the FCC chairman released a report saying its practices harmed streaming rivals and, ultimately, consumers. It particularly singled out AT&T's Sponsored Data service, saying it "unreasonably interfere[s] with [rival services'] ability to compete against AT&T's affiliate, DirecTV."

Sponsored Data, as a reminder, is an AT&T program that gives consumers free data to try out new apps or services, with the costs subsidized by the providers of those services through payments to AT&T. However, Wheeler's report says that "AT&T imposes hefty per-gigabyte charges on third parties for use of sponsored data." By contrast, T-Mobile gives "all [streaming services] the same zero rate for participating in Binge On."

Verizon's FreeBee Data 360 service, which is similar to AT&T's Sponsored Data, also runs afoul of the FCC's idea of fair zero-rating (Verizon owns AOL and by extension, Engadget). The report says that nothing seems to be stopping Verizon from charging third party streaming or other services higher rates than its net cost to stream its own go90 video service. The carrier the FCC it offers other companies "equivalent" terms to its own costs, but provided no data to back that up.

Wheeler reviewed different carrier products on a "case-by-case basis," asserting that he's not against the idea of zero-rating in principal. Rather, the FCC is looking at cases where companies like AT&T and Verizon, which control significant chunks of broadband, favor their own "downstream" services (like DirecTV or go90) over competitors.

In a letter sent last month to AT&T, the FCC explained that a third-party streaming service might have to pay AT&T in the range of $16-$47 per month (depending on usage) to zero-rate its service so that it doesn't count against a user's data cap. Meanwhile, DirecTV Now costs $35 per month, period, and as it's part of AT&T's "Data Free" plan, has no effect on users' data caps.

That, in effect, makes it infeasible for rivals like Sling TV to compete against AT&T's own services over LTE networks. It also "favors big content providers who can afford to pay for access to users' eyeballs, and marginalizes those who can't, such as nonprofits, startups and fellow users," the Electronic Frontier Foundation wrote.

Both carriers slammed the FCC's report, without addressing the FCC's arguments. "It remains unclear why the [commission] continues to question the value of giving consumers the ability to watch video without incurring any charges," said VP Joan Marsh. Verizon also dismissed it, saying that "we don't agree with their view on free data and we don't think our customers do either."

The FCC won't take any enforcement action against the carriers, however, as the process could take years. And once Wheeler leaves, the board will be controlled by Republican commissioners who intend to gut net neutrality rules.

In fact, Republican FCC Commissioner Ajit Pai excoriated the report, saying that Wheeler is "pursuing partisan, political agendas that only harm investment and innovation" on his way out. As a prelude to a new FCC that's likely a lot more carrier-friendly, he added "I am confident that this latest regulatory spasm will not have any impact on the Commission's policymaking or enforcement activities following next week's inauguration."