Wireless carriers in the past few years have consistently tightened restrictions on how much data traffic customers can stream to smartphones and tablets. Their rationale has been that new applications, especially video, were hogging so much bandwidth that they threatened to grind cellular networks to a halt.
It turns out the data caps also make for some novel business opportunities.
On Wednesday, the chief executive of AT&T (T) outlined a future in which certain content providers or app developers could pay carriers to avoid having their services count against a customer’s monthly data limit.
“There will be players in the ecosystem who are motivated to draw more traffic to their particular content or website,” Randall Stephenson said at a conference for investors hosted by JPMorgan (JPM). “And will there be models that emerge where they are willing to defray some of the consumer end-user charges by paying it by themselves, either by advertising or by monetization of data? I think the answer to that is yes.”
It’s not hard to see why this sounds like a good idea to Stephenson. Such deals could also be a big deal for a business such as ESPN (DIS). The Wall Street Journal reported last week that the sports network has talked with at least one wireless provider about covering some viewer data costs.
At first glance it could also benefit consumers, giving them one less detail to worry about when navigating complex phone plans. And who’s against unlimited sports highlights?
Plenty of people, actually. There’s a fight ongoing in Washington about whether the people who control the infrastructure of the Internet should be allowed to offer preferred treatment for certain services.
What Stephenson sees as a new market is better described as a shakedown, according to Michael Weinberg of Public Knowledge, a nonprofit group that advocates for an open Internet. In a Wednesday post on the organization’s blog, he questioned whether the technical justification for data caps in the first place were a smokescreen to generate new revenue.
“Data caps are all about forcing content creators to pay in order to reach subscribers,” Weinberg wrote. “By creating data caps, ISPs create a new market that never needed to exist and never existed before: the market for not being counted against data caps. And that market can be big money. But it can also fundamentally change the way the internet economy functions.”
Once this market exists, Weinberg argues, developers and content creators who can afford to pay will have an unfair advantage over upstarts, stifling innovation and limiting consumer choice. There have been questions about carriers’ claims about their limited bandwidth in recent years. And once a carrier can rely on fixed customer data limits, it has little incentive to make its data traffic more efficient.
Stephenson said at Wednesday’s conference that while he doesn’t think there’s much to be gained from data caps on the wired Internet, wireless is a different story. “You put another megabyte on the mobile network, there is a direct and immediate cost dynamic on it,” he said. “That is what will drive those secondary business models.”