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The lurking danger behind AT&T's Sponsored Data program


On the surface, AT&T's recently announced Sponsored Data feature sure sounds like a great idea. Under the plan, sponsors will help foot the bandwidth bill for select content, enabling AT&T's 4G customers to enjoy a wide variety of media content without having it count against their monthly data allotment.

What's not to like?

As it turns out, a whole lot.

Nilay Patel of The Verge recently took an in-depth look at AT&T's Sponsored Data program where he highlighted a number of troubling issues. So while the program, at first glance, may seem like a boon for consumers, it's actually quite insidious.

First, it's always important to remember that if something seems to be good to be true, it probably is. This axiom is especially true when we're talking about big business. At the end of the day, AT&T's ultimate goal is to increase profits and return value to shareholders. Consequently, Ma Bell's new Sponsored Data program isn't meant to be a warm and fuzzy gift to users to help ring in 2014. On the contrary, it's a clever way to a) get users to digest more bandwidth and b) get big-name sponsors to foot the bill.

Under AT&T's tiered data plans, it's safe to assume that most consumers are pretty diligent at avoiding going over their monthly data allotment. After all, no one likes overage charges. With its Sponsored Data program, however, AT&T has figured out a way to get paid for delivering more data than its tier-confined subscribers would otherwise use.

So just why is this a bad thing? Because it can work to promote websites and services with large bank accounts over smaller competitors with fewer resources.

To illustrate this point, Patel brings up an on-point example -- movie rentals.

Right now, you can rent the movie Elysium for $4.99 from either iTunes or Google Play.

... so if Apple wanted to stick it to Google, it could subsidize Elysium rentals and advertise that renting the movie from iTunes won't hit your data cap.

While a company like Google could survive this scenario, the landscape looks a whole lot different when you consider a big-cap company like Apple or Google tightening the screws on a smaller and up-and-coming competitor.

That has huge implications for the free market of the internet: if YouTube doesn't hit your data cap but Vimeo does, most people are going to watch YouTube. If Facebook feels threatened by Snapchat and launches Poke with free data, maybe it doesn't get completely ignored and fail. If Apple Maps launched with free data for navigation, maybe we'd all be driving off bridges instead of downloading Google Maps for iOS.

Now one might reasonably argue that the Sponsored Data program is merely a bonus, a simple way for users to enjoy even more data at no extra cost. The reality is that Sponsored Data might quickly cause consumers to change their data plan to the lowest tier and then enjoy free data to their heart's content. In such a scenario, imagine if a company like Pandora joined AT&T's Sponsored Data program. Competing products like Spotify would be put in an extremely tough position. The dangerous thing about sponsored data is that if only the big players can afford it, content creators without deep pockets will find themselves at a stark disadvantage.

But what about consumers? Aren't they winning in all of this?

Not exactly.

Businesses are all about the bottom line and data sponsors are only going to participate if it serves their monetary interests. To this end, it stands to reason that any company offering sponsored data will recoup their bandwidth costs by passing the buck down onto the consumer. For example, if Pandora participated in AT&T's Sponsored Data plan, it might easily recoup that cost by instilling more ads or increasing the price of subscriptions.

Taking things a bit further, what if AT&T in the future started offering a heavily discounted monthly data package coupled with all the sponsored data you can consume? As Patel points out, this would effectively turn AT&T into a "major economic gatekeeper on the internet."

That of course works to AT&T's advantage as it instantly transforms them into a major mobile player, a much more alluring proposition than simply overseeing a maze of dumb pipes.

Naturally, net neutrality issues have been raised as well. To that end, AT&T made a point of noting that there will be no performance difference between sponsored data and regular ole' unsponsored data.

With all of the issues that AT&T's new Sponsored Data plan brings to the surface, it's hardly a surprise that FCC chairman Tom Wheeler addressed the issue during his CES talk on Wednesday.

"My attitude is, let's take a look at what this is," Wheeler explained. "Let's take a look at how it operates. If it interferes with the operation of the internet, if it develops into an anti-competitive practice, if it does have some kind of preferential treatment given somewhere, then that is cause for us to intervene."
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