The FCC says AT&T is harming consumers
By: Parker Nolan
Tags: Investing, Business, Donald Trump, Net Neutrality, Tech

Have you heard of AT&T’s “DIRECTV Now” service? The Federal Communications Commission certainly has, and it isn’t happy.

If you aren’t familiar with the service, it allows subscribers to stream live TV and On Demand shows from a mobile device. The cheapest bundle is 100 channels for $35/month (this is a limited time offer and will jump to $60/month unless you sign up now), and users can add-on channels like HBO for as little as $5.

DIRECTV Now was initially hailed as a cord-cutter’s dream, especially considering that AT&T announced that AT&T customers will not be billed for any data used while streaming Now on their mobile devices.

If you use even a bit of data on your phone, you understand how expensive that data can be. Even if you have an unlimited data plan, that costs $100/month!

So for AT&T customers that don’t have unlimited data plans, DIRECTV Now’s new data-free plan sounds pretty sweet, right? Not for the FCC.

Here’s the problem

The Federal Communications Commission (FCC) sent AT&T a letter this Thursday reprimanding the company for this policy.

What AT&T is doing is called “zero-rating,” and is not always a problem. T-Mobile has recently announced their own zero-rating plans with music streaming services such as Spotify and YouTube, and this has not raised any issues.

The problem with zero-rating comes when it presents an unfair advantage for a certain provider. By only zero-rating its own service, AT&T is making their own service much more attractive than competitors like Netflix and Sling TV.

In the official letter (here), The FCC estimates that

…an unaffiliated mobile video service provider would have to pay AT&T $16 a month to offer zero-rated service to a customer who uses just 10 minutes of LTE video per day, increasing to $47 for a customer using 30 minutes per day. These costs alone would represent 46 percent to 134 percent of DIRECTV Now’s $35 retail price…

For a streaming company such as Hulu to provide data-free streaming for just half an hour each month, it would cost them about $47/month, in addition to their regular costs and fees. The average American watches over four hours of television per day (source).

If Hulu or Netflix wanted to provide four hours of zero-rated streaming per day, the cost would come to $9,000/month!

It’s pretty obvious, with those metrics in mind, why the FCC believes that AT&T’s zero-rating policy for DIRECTV Now violates net neutrality rules.

The meaning of Net Neutrality

The term “Net Neutrality” is tossed around a lot, and it is important that you know what it means.

Net Neutrality refers to equal access to websites, content, and applications on the internet. Net Neutrality is protected by the FCC’s Open Internet rules.

According to the Open Internet rules, internet service providers (ISPs)(including Comcast, Verizon, and AT&T) are not allowed to block any legal content in favor of their own. In addition, the rule “also bans [service providers] from prioritizing content and services of their affiliates” (Source: FCC).

AT&T’s zero-rating policy flies directly in that last restriction. Basically, the FCC mandates that AT&T either has to zero-rate more services, or end its zero-rating policy for DIRECTV Now.

If you’re wondering why T-Mobile hasn’t received any criticism for letting customers stream certain services without being billed for the data, it is because they are not zero-rating their own service. T-Mobile’s current policy zero-rates apps like Spotify and YouTube, neither of which are owned by T-Mobile.

What this means for AT&T

The FCC has already done its part to make life difficult for the service provider, issuing a $100 million fine in June of 2015. With this new ruling, AT&T’s offering will be weakened, resulting in a lagging stock price, right?

Wrong.

Even though the FCC has warned AT&T about their policies, nothing is likely to change. This is because Donald Trump is headed to the White House.

Donald Trump has already stated that he is against Net Neutrality rules, as he believes they target conservative media unfairly.

Trump has announced that Jeffery Eisenach and Mark Jamison will head his FCC transition team. The two men are telecom lobbyists who are most likely anti-Net Neutrality. In addition, one of the few dissenters to the FCC’s 2015 decision regarding AT&T’s unlimited data was a Republican FCC commissioner.

All of this points to the likelihood that the FCC will be upended, with its Net Neutrality rules dismantled. While many free speech and net neutrality advocates are appalled by this possibility, the future looks bright for AT&T as well as all other ISPs.

It is very likely that AT&T will not receive a fine or ruling regarding its zero-rating policy, meaning that it will be able to keep its marketplace advantage and increase Now’s popularity, boosting AT&T revenues. This also comes as a boon to Verizon, who offers a zero-rating policy for its streaming service Go90, as well as any other ISPs that decide to implement their own streaming services.

This may be the dawn of a new golden era for ISPs.