AT&T says 'sponsored data' does not violate Net neutrality

AT&T says its new "sponsored data" service does not violate the Federal Communications Commission's Net neutrality rules.

Earlier this week, AT&T announced a new plan that will allow app makers and Web sites to pay for the bandwidth that consumers use when accessing their services. The move immediately stirred up protests from digital rights activists who said that such an offer was a violation of the FCC's Open Internet rules, which are supposed to ensure that broadband service companies cannot restrict or prohibit access to services on their network.

On Thursday, AT&T issued a statement defending its service and stating that it is not a violation of Net neutrality rules.

"We are completely confident this offering complies with the FCC's Net neutrality rules, which our company supports," Jim Cicconi, AT&T senior executive vice president of External and Legislative Affairs, said in a statement.

Cicconi reiterated AT&T's claim that the offering is actually good for consumers by helping them save money.

"AT&T's sponsored data service is aimed solely at benefiting our customers," he said. "It allows any company who wishes to pay our customers' costs for accessing that company's content to do so. This is purely voluntary and non-exclusive. It is an offering by that company, not by AT&T."

But digital rights and consumer advocates say AT&T is being disingenuous with its claims. They believe that AT&T's plan will increase the costs for businesses, which will then be passed on to consumers. And they take issue with the fact that consumers will still be paying the same amount for their monthly allotment of data. The only difference is that whatever data they use on a sponsored app or site will not be counted against their monthly total of data usage.

"The FCC needs to protect consumers and creators from Internet service providers (ISPs) who want to pick winners and losers online," Michael Weinberg, acting co-president of Public Knowledge, said in a statement. "The company that connects you to the Internet should not be in a position to control what you do on the Internet. AT&T's announcement positions itself to do just that."

Weinberg went on to say that this new service is also a clear indication that the reasons AT&T has stated for needing to have data caps on services for customers don't really apply. AT&T has said in the past that data caps were needed to better manage congestion on its network.

"As AT&T CEO Randall Stephenson announced in May, data caps are all about forcing content creators to pay and are no longer about any sort of network congestion," he said.

So far, the FCC has been mum on the topic. But some analysts believe that AT&T has nothing to fear when it comes to retribution from the FCC.

Paul Gallant, an equities analyst for Guggenheim Securities, said in a research note recently that the FCC rules, which were established three years ago, are fairly lenient toward wireless companies when it comes to developing new business models. The rules only ban a few specific actions, such as a wireless carrier blocking access to a voice over IP service. But the rules don't necessarily prohibit anything like AT&T's sponsored data.

What's more, he added, AT&T's argument that consumers will actually benefit by getting more wireless data service without having to pay for it will resonate positively with the FCC.

This is an "effective argument that is likely to lead the FCC to permit AT&T and other wireless operators to pursue Sponsored Data-type arrangements," he said.

Other wireless carriers are likely to follow AT&T's lead. Verizon was reportedly in talks last year with ESPN to offer a similar program.

AT&T has already announced its first partners, which include UnitedHealth Group, advertising startup Aquto, and software maker Kony Solutions.

So far, there's been no mention of any big streaming video players interested in such a deal. Gallant noted in his analysis that if Amazon or Google's YouTube participate in AT&T's sponsored data program it would likely force other video services, like Netflix, to do the same. The same might be true of streaming music services such as Spotify or Pandora. If bigger competitors like Apple pay AT&T to allow their users to get access without a data penalty to their services, it will put pressure on smaller players that are looking to compete.

"In addition to being a ripoff for both consumers and content creators, AT&T's plan erects a massive barrier in front of anyone hoping to be the next big thing online," Public Knowledge's Weinberg said.