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FCC Says AT&T’s Zero-Rated DirecTV Video Services May Be Anticompetitive

The head of the FCC’s wireless division has asked AT&T to respond to the agency’s “serious concerns” about the telco’s current practice of zero-rating DirecTV video apps for AT&T wireless customers.

In a letter Wednesday to AT&T, Jon Wilkins, chief of the FCC’s Wireless Telecommunications Bureau, said the DirecTV zero-rating practices and the telco’s sponsored-data program that let content companies pay to have their content delivered free-of-charge to AT&T users “may obstruct competition and harm consumers by constraining their ability to access existing and future mobile video services not affiliated with AT&T.”

The FCC’s letter to AT&T comes after the telco giant last month announced its planned $85 billion takeover of Time Warner — and was sent one day after Donald Trump won the U.S. presidential election, portending staff changes at the FCC.

In September, AT&T rolled out a program called “Data Free TV,” under which customers with both AT&T wireless and DirecTV will be able to stream an unlimited amount of video through the satellite operator’s app without counting toward their monthly data-usage bucket. The telco also plans to provide that “zero-rating” benefit to customers who have both the DirecTV Now broadband-delivered bundle, priced at $35 per month for 100-plus channels, and AT&T wireless.

In response to the FCC’s letter, Robert Quinn, AT&T’s senior VP ‎of external and legislative affairs, said the sponsored-data program is fair because it’s open to all comers. “We welcome any video provider that wishes to sponsor its content in the same ‘data free’ way,” he said in a statement. “We’ll do so on equal terms at our lowest wholesale rates.”

But according to Wilkins, the FCC is not concerned with zero-rating services per se, noting that the 2015 Open Internet Order doesn’t prohibit them and that they may in some cases be in the public interest. Rather, the problem is that AT&T’s exempting DirecTV and DirecTV Now from usage caps puts other video providers at a disadvantage. “While there is no cash cost on a consolidated basis for AT&T to zero-rate its own affiliate’s mobile video service (since DirecTV’s ‘cost’ of Sponsored Data is equal to AT&T Mobility’s sponsored data ‘revenue’), an unaffiliated provider’s Sponsored Data payment to AT&T Mobility is a true cash cost,” he wrote.

Furthermore, at AT&T’s pricing for sponsored data (which the telco provided confidentially to the FCC), “it is not difficult to calculate usage scenarios in which an unaffiliated provider’s Sponsored Data charges alone could render infeasible any third-party competitor’s attempt to compete with the $35 per month retail price that AT&T has announced for DirecTV Now,” Wilkins wrote.

Wilkins requested that AT&T respond to the Wireless Bureau’s concerns by Nov. 21.

“If AT&T believes that its arrangements do not unreasonably interfere with or disadvantage unaffiliated edge providers’ ability to provide video content and services to AT&T’s mobile broadband subscribers, or that they do not improperly restrict or skew end-users’ choices among mobile streaming video services, we invite you to explain why,” Wilkins concluded in his letter.

All that said, the regulatory environment at the FCC could change with the Trump administration. Trump favors a lighter regulatory approach than has been the case under President Obama. Two years ago, Trump called network neutrality a “top-down power grab” and analysts expect the president-elect to put the repeal of the FCC’s Open Internet Order on his agenda.

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