As part of the festivities kicking off this year’s Consumer Electronics Show, AT&T (T) said it was fulfilling a long-standing dream of the wireless industry: allowing companies to pick up the mobile-data tab for consumers, so a sponsored service won’t count against monthly limits. The company said on Monday that clients will use the “sponsored data” program to offer customers free trials of applications, give patients toll-free access to medical applications, or pay for an employee’s work-related Internet use.
AT&T describes the idea as a novel way to manage exploding wireless traffic, which has risen 30,000 percent over the last six years. “As content consumption has evolved from analog to digital, so have the ways for companies to reach consumers,” said Andy Geisse, chief executive of AT&T Business Solutions, in a statement. In the short term, the deal may be greeted with enthusiasm from customers who are growing used to capped data plans.
Still, the business of company-sponsored, free Internet services is contentious. Facebook (FB) has been offering free data to international customers and recently reached a deal with T-Mobile (TMUS) to start doing the same thing for customers of its GoSmart subsidiary in the U.S. Last year, ESPN (DIS) was reportedly discussing a similar deal with at least one domestic wireless carrier. Advocacy groups fear that the practice will lead to higher prices and fewer competitors in the long run.
For now, at least, such plans can’t fly for the wired Internet due to net neutrality. That could change: A federal court is currently considering Verizon’s (VZ)legal challenge to the U.S. Federal Communication Commission’s Open Internet rules and is expected to reach a decision as soon as this month. The issue is seen as an early test for new FCC chairman Tom Wheeler, a former lobbyist for the cable industry whose early comments on the issue drew criticism that he was waffling. Wheeler emphasized his support for net neutrality rules in a congressional hearing.
AT&T is doing this with its wireless service and not its U-Verse wired Internet plans because wireless activity is special in the eyes of the law. The FCC’s Open Internet rules don’t have a non-discrimination principle that would prohibit providers from treating different types of traffic in different ways. The argument is that the wireless market is both more competitive and has more legitimate concerns about congestion.
John Bergmayer, a senior staff attorney with Public Knowledge, an advocacy group that supports strong net neutrality rules, doesn’t buy either of those arguments. In a truly competitive market, he argues, no carrier could gain enough leverage to ask some providers to pay for special access to customers. The data caps on wireless plans, he argues, are a clever form of artificial scarcity. And while the FCC’s rules don’t explicitly disallow sponsored data plans, the commission isn’t precluded from going after anti-competitive behavior. “They’ve opened what some have characterized as a loophole, but they have also said they’ll keep a look at it,” says Bergmayer.
Whether this qualifies as anti-competitive depends on your perspective. Critics say that charging people to reach customers will squeeze out companies attempting to challenge deep-pocketed incumbents. At the same time, companies that can afford to pay will pass the costs on to consumers.
Carriers, meanwhile, have likened sponsored data plans to 1-800 phone numbers, which have existed without serious opposition for years. Hence the term “toll-free data” to describe a practice that is actually charging a toll. Bergmayer acknowledges the phrase’s advantages as a branding tool: “Everyone has analogies,” he says. “You choose the one that suits you best.”