AT&T's new streaming TV service is testing the limits of fair competition rules

AT&T President and CEO Randall StephensonAlex Wong/Getty ImagesAT&T President and CEO Randall Stephenson.

AT&T dove head first into the internet TV streaming game on Monday with its new DirecTV Now streaming service

Just like existing streaming services such as Dish’s Sling TV and Sony’s PlayStation Vue, DirectTV Now lets you stream a smattering of cable TV channels over the internet.

But AT&T’s new service has a big advantage over Dish and Sony’s rival services.

AT&T, which owns large broadband and wireless networks, is an internet service provider, or ISP. As a result, it can leverage its infrastructure to help promote its other ventures. And so, as promised, the carrier announced that users of its internet services will be able to stream much of DirecTV Now without it counting against their data caps.

This increasingly prevalent practice — in which an ISP chooses which services are free to stream on its network — is colloquially known as “zero rating,” and it is arguably the most controversial topic in the ongoing net neutrality debate that’s raged across America for the past few years.

In many ways, it is a generous value. Lots of people pay AT&T for mobile service, and DirecTV Now, at least at first blush, looks to be a very competitive option for cord cutters. Being able to watch TV on the bus or the train without having to worry about your speeds getting throttled later in the month is a huge comfort. It’s the same strategy T-Mobile has used to great effect with its “Binge On” and unlimited data plans — give people free stuff, and obviously they will use it.

But the practice has net neutrality advocates worried, particularly when it comes to AT&T.

As a reminder, the core tenet of the net neutrality rules the FCC passed in 2015 is to regulate ISPs into ensuring that all data that cross over their network is treated equally. For instance, a Comcast or Verizon or AT&T (all considered ISPs) cannot force a web service such as Google or Netflix to pay a fee for access to a “fast lane” that delivers the service to consumers at a higher quality than other web services.

Zero rating does not currently fall under those net neutrality rules, though. Instead, the FCC says it judges those instances on a case-by-case basis, then determines if they harm competition.

T-Mobile hasn’t faced as much resistance  — relatively speaking — because it hasn’t charged internet companies for the “privilege” to be streamed at no cost. Aside from having to make a few technical modifications, most services can just sign up and compete with everyone else who has jumped aboard.

To be zero rated on AT&T’s network, however, a company has to pay up. The carrier has repeatedly defended this as a neutral practice by saying that it charges DirecTV the same amount as any third-party service. But AT&T owns DirecTV. It’s hard to explain how that is not the equivalent of shifting money from one pocket to another.

This would seem to give DirecTV Now a significant technical advantage over rival streaming services like Sling TV and PlayStation Vue. 

This, ostensibly, is what the FCC’s rules were made to avoid. Earlier this month, the FCC sent a letter to AT&T  stating that it has “serious concerns” over the carrier’s aims, and how it might be boxing out competitors who are not affiliated with AT&T’s sponsored data programs. AT&T responded by, again, claiming DirecTV is paying the same rate as any other potential player, and correctly pointing out how there are no hard-and-fast rules for zero rating in the first place.

Further complicating this specific instance of zero rating is the fact that DirecTV Now is explicitly designed as a cable replacement, and that AT&T is helping to advance wireless 5G networking. The carrier reportedly wants DirecTV Now to be its primary TV platform by 2020, and it is already working on ways to make eventual 5G networks a home broadband replacement. Put the two together, and it’s possible the zero rated landscape that’s largely developing on mobile moves further into the home.

Beyond that, more immediate signs suggest that the current net neutrality rules are in doubt. President-elect Trump has long promised to cut back on government regulations, and he’s appointed two staunch opponents to the current FCC regime — economist and former telecom consultant Jeffrey Eisenach, and professor and former Sprint lobbyist Mark Jamison — to advise him on FCC-related issues as part of his transition team.

Eisenach once advocated for zero rating in a while paper sponsored by Facebook’s initiative, which itself has come under fire for the practice. In any case, a rollback of the today’s net neutrality rules would likely render concerns over AT&T’s approach moot.

For now, DirecTV is a nascent service, and it remains to be seen how many people will actually buy it in the first place, let alone how big an advantage it being zero rated on AT&T networks will be. If it proves to be a boon, though, don’t be surprised to see other ISPs dig deeper into zero rating — for better or worse. 

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