Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

T-Mobile has won over many new customers by refashioning itself as the cellphone service provider that isn’t afraid to break all the rules. Recently, though, the company has stretched its outlaw status too far.

T-Mobile has been in combat mode over a new smartphone service called Binge On, which pitches access to a selection of Web video services like Netflix and Hulu without the video counting against monthly data limits. T-Mobile’s proposition -- FREE STREAMING VIDEO WITHOUT WORRY! -- sounds great, doesn’t it? Well…

Pricey Connections
U.S. consumers pay among the world's steepest prices for mobile data. The average revenue that cellphone companies make from each user has dipped in the U.S. since 2010, but it has dropped even more in other countries.
Source: IHS
Note: 2015 data is not for the full year

T-Mobile has tackled high-minded technical or legal arguments about whether the company is treading on the letter or the spirit of "net neutrality,” the principle that consumers must have equitable access to everything online, whether it’s a podcast recorded by your brother-in-law or an NFL highlight video.

There is also a simpler objection to T-Mobile’s new approach: As a consumer marketing pitch, T-Mobile’s Binge On simply isn’t very honest. 

As part of Binge On, T-Mobile also started to stream Web videos at a lower quality. Presumably this is to reduce the pressure on T-Mobile’s network from all those people bingeing on free video to their hearts’ content. But it turns out the carrier is reducing the quality of all Web videos, including those from online video companies like YouTube that aren’t for now among the data-exempt services in Binge On. 

That makes it seem as if T-Mobile's mission isn't really about giving people more video. Rather the aim is to use a marketing tool to dress up the company's effort to ease burdens on its network at a time when people are spending growing amounts of time streaming video. AT&T, for example, says Web video accounts for more than half of the traffic on its home Internet and mobile networks. (T-Mobile also twinned the Binge On announcement with disclosure about higher priced monthly service plans that come with bigger allotments of data.)

Maverick Rising
T-Mobile's stock price has climbed as its clever marketing pitches and smartphone offers have stolen subscribers from other carriers.
Source: Bloomberg

T-Mobile CEO John Legere has talked about why slowing down Web videos isn’t necessarily bad. The Binge On program -- and the accompanying alteration of Web videos -- kicks in automatically for many T-Mobile smartphone subscribers, but the company says people can disable it for all or some videos in cases where people want to ensure crisp video without the risk of streaming hiccups. A lot of people won’t be able to tell the difference, particularly on smartphone screen sizes.

But instead of hewing to its clumsy “free videos are awesome!” idea that muddies the company’s message, T-Mobile should embrace an opportunity for a plainspoken pitch like this: "We realize many of you are worried about the monthly allowances for mobile data. Your kids -- those darn kids! -- are Snapchatting and YouTube’ing up a storm, and it’s costing your family a fortune. We at T-Mobile are going to do some behind-the-scenes technical work to deliver videos at a lower quality to help people squeeze more mileage out of their monthly plans. This also helps the company get more out of our expensive mobile network."

If presented with the choice, surely some people would opt for smartphone plan that let them watch, say, 30 Netflix videos a month  -- instead of 10 under their current data limits -- with the trade-off of some videos loading slowly, hiccuping or looking a bit fuzzy. Others would think T-Mobile was just trying to give them worse service for the same money, and they could decline.

Either way, enrolling in Binge On would be an informed decision, and T-Mobile would have been honest with subscribers about what Binge On is and isn't. A video quantity-over-quality pitch also could be another inventive T-Mobile offer that has helped propel the company to healthy subscriber growth. In an open letter from Legere released Monday, the CEO does appear to stress the "stretch consumers' data bucket" message more than the "free video" element of Binge On. It's not as good a marketing message as FREE STREAMING VIDEOS! But it has the benefit of being truthful. 

Mike Sievert, T-Mobile's chief operating officer, said the company was forthcoming about the twin messages of data-exempt Web video services plus downgrading video quality. Even if people can’t or won’t want to pay for an unlimited data plan, Sievert said Tuesday, “they want free unlimited video, and we found a way to give it to them."

Traffic Hogs
Traffic to YouTube and Facebook accounts for more than one-third of all use of mobile phone networks during peak evening hours in North America.
Source: Sandvine
Note: Data collected in September and October of each year

T-Mobile provides a useful reminder of why consumers and regulators need to demand more transparency from mobile and Internet providers. Americans pay among the world’s highest prices for cellphone service. And nearly all people in the U.S. have at most two options for home Internet providers. Without consumers paying much attention, this has become a period of novel -- and potentially detrimental -- experimentation by the companies that are the gateways to the Internet in our homes and on our phones. 

AT&T, ComcastFacebook and European mobile carriers like Vodafone are among the companies testing business arrangements that give people access to certain websites or apps without worrying about data costs. You can imagine Netflix paying T-Mobile to let smartphone users watch the latest Netflix video series without it counting against consumers’ data cap. That would be a compelling lure to check out a new show, but the behavior also wades into uncomfortable territory. Rich companies like Netflix or Google can pay for access to consumers' eyes and ears, while upstarts cannot. 

Ultimately Binge On and these other experiments have three aims: Give the company more ways to make money, keep consumers happy and make sure data networks don’t crumble as people gobble up more video. The FCC has asked for more information to keep a close watch on these kinds of tests. Consumers also should stay vigilant to make sure companies aren’t distorting those three aims too much in their favor.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Consumer advocacy organization Electronic Frontier Foundation said T-Mobile isn’t doing anything on its part to lower the quantity of videos in a smart way. There have been some reports of Web videos on T-Mobile's network stuttering to the point of being unwatchable. This proposed alternative marketing message for Binge On assumes T-Mobile's technology does ensure videos can get served at lower quality without significant degradation. T-Mobile says its customers are overwhelmingly happy with Binge On.

  2. T-Mobile says people can “watch 3x more video" with Binge On enabled. This claim hasn't been verified.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net