AT&T, Verizon likely violating net neutrality, FCC says

AT&T and Verizon are likely violating net neutrality rules, the Federal Communications Commission has determined, but don’t expect the agency to do anything about it.

Thanks to Donald Trump’s election, the FCC will be getting a makeover and both its Republican members and the people Trump picked to oversee the agency during the transition are itching to ditch the so-called Open Internet regulations.

The controversy surrounds what are called “zero rating” or “sponsored data” programs. Those programs allow broadband subscribers to access particular websites or services without tapping into their limited allotments of monthly data.

After reviewing several zero rating plans, the FCC found it likely that those offered by AT&T and Verizon were anti-competitive.

“It would appear that AT&T’s practices inflict significant unreasonable disadvantages on (web service companies) and unreasonably interfere with their ability to compete against AT&T’s affiliate, DirecTV,” FCC chairman Tom Wheeler wrote in a letter sent Thursday to seven Democratic senators, including Al Franken. “The structure of Verizon’s … program raises similar concerns.”

Zero rating plans can sound like a good deal for consumers. But they have the potential to thwart competition. Broadband subscribers are more likely to go to sites that they can access without using up their data. If a broadband provider limited data-free usage to its own sites and services or charged exorbitant prices to companies that wanted to do the same thing, it could distort the market for broadband and other services.

When the FCC was debating its net neutrality rules, some consumer advocates urged the commission to ban zero rating schemes, a move regulators in other countries, such as India, have recently taken. But Wheeler and the FCC, arguing that zero rating plans can benefit consumers and competition in some cases, declined. Instead, the commission, in the net neutrality rules it issued in 2015 said it would evaluate such schemes on a case-by-case basis to determine whether they violated the main Open Internet principles or posed a threat to competition.

Several different zero-rating programs have cropped up over the last several years. FCC staff examined four of them — T-Mobile’s Binge On, Verizon’s FreeBee Data 360, and AT&T’s Data Perks and Sponsored Data programs.

The commission’s staff noted that it didn’t get thorough responses to the inquires it sent to either AT&T or Verizon. Still, from what it could determine, both Verizon’s FreeBee Data 360 program and AT&T’s Sponsored Data program appeared problematic.

Under both programs, customers of those carriers can access videos from the carriers’ own services — Verizon’s go90 and AT&T’s DirecTV — without using up any of their limited data. Although both companies allow other video service providers to offer video data-free, both appear to either be charging discriminatory rates to potential competitors already or to have no restrictions in place to prevent them from doing so.

Of the two programs, AT&T’s appears to be offer the bigger competitive threat, the FCC said. DirecTV offers a “full range” of video services, including live TV and full-length movies, putting it into direct competition with services like Netflix, Hulu and Sling TV. By contrast, Verizon’s go90 is a much more limited service with a narrower range of video offerings.

“Because Verizon’s go90 competes in a less developed segment of the marketplace than AT&T’s DIRECTV Now, the current magnitude of any anticompetitive effects of Verizon’s practices may be smaller than AT&T’s,” the FCC staff write in a report on the zero rating services, which Wheeler included in his letter to the senators. “Nonetheless … there is the same potential for discriminatory conduct in favor of affiliated services, and its competitive impacts in the short-form portion of the market exist today.”

By contrast, the FCC found no current competitive or net neutrality problem with T-Mobile’s Binge On program. Unlike Verizon and AT&T, T-Mobile doesn’t have a video service of its own to which it’s giving favorable treatment. And it allows any video service provider to participate in Binge On for free, as long as they meet certain technical requirements.

Likewise, the FCC didn’t find a problem with AT&T’s Data Perks program, under which consumers can earn extra data usage from the company by viewing ads, purchasing products or taking other steps from certain marketing partners. That extra data can be used to access any internet site or service, the agency noted.

Whatever the competitive dangers of AT&T and Verizon’s programs, the FCC almost certainly will do nothing about them. Republican commissioner Ajit Pai criticized Wheeler for issuing the report and signaled that the agency will take a different tack once Trump takes office.

“It is disappointing that the FCC’s current leadership has yet again chosen to spend its last days in office the same way it spent the last few years—cutting corners on process, keeping fellow Commissioners in the dark, and pursuing partisan, political agendas that only harm investment and innovation,” Pai said in a statement issued Thursday.

He added: This report, which I only saw after the FCC released the document, does not reflect the views of the majority of Commissioners. Fortunately, 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.”

Photo: FCC Commissioner Ajit Paj speaks as Commissioner Mignon Clyburn(C) and FCC Chairman Tom Wheeler(R) look on during a meeting of the commissioners in May 2014. Karen Bleir/AFP/Getty Images

 

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