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AT&T, Verizon Fire Back at FCC Charge That Zero-Rated Video Services Violate Net Neutrality

AT&T and Verizon came out swinging against the FCC in defending their “zero-rated” wireless data practices as pro-consumer. And AT&T said that the agency has no authority to take any action on the issue anyway, given the changeover in FCC leadership with President-elect Donald Trump — who has telegraphed that he’ll take a far more hands-off regulatory approach — taking office next month.

The telcos were responding to the FCC Wireless Telecommunications bureau, which said in Dec. 1 letters to both AT&T and Verizon that it had concluded that their zero-rated programs favor their own video services to the detriment of competitors and consumers and run afoul of the FCC’s network neutrality rules. Verizon excludes video watched on NFL Mobile and Go90 from wireless-data charges, while AT&T does the same under its “Data Free TV” program for wireless subscribers who watch video on DirecTV or U-verse apps or its DirecTV Now over-the-top service.

“The Bureau has still articulated no plausible basis for challenging Data Free TV as ‘anticompetitive,'” Joan Marsh, AT&T’s senior VP of federal regulatory, asserted in a letter to the FCC Wireless Telecommunications bureau.

AT&T said its zero-rated services are kosher under longstanding Congressional and FCC precedents. For example, the FCC has entitled carriers to provide edge services as long as those are offered to third-party providers on nondiscriminatory terms, “even though, by purchasing those inputs, the unaffiliated provider would necessarily incur ‘cash costs’ that the vertically integrated company would not incur ‘on a consolidated basis,'” Marsh wrote.

“Other video providers can be expected to respond to [AT&T’s Data Free TV] either by sponsoring their own content with AT&T and/or other wireless providers or by finding different ways to improve and differentiate their offerings and generate consumer value,” she wrote.

Marsh noted that T-Mobile launched a new offer in response to Data Free TV by offering AT&T customers a $35 monthly discount for 12 months, positioning it as one free year of DirecTV Now if they switch to T-Mobile. “This is the competitive process at work, driving innovation, lowering prices, and increasing consumer value,” she wrote.

Furthermore, AT&T said, if it terminated the sponsored-data program, that would also “weaken DirecTV Now’s potential to disrupt the cable-dominated pay-TV marketplace. Consumers are more likely to perceive DirecTV Now as a cable substitute if, as with cable, they can consume as much of it as they like without worrying about overages.”

Verizon senior VP Kathleen Grillo, in a letter to the wireless bureau, echoed the point that “well-established telecommunication and competition laws consistently recognize the legitimacy of arrangements where providers charge their affiliates the same price for the same services they provide to competitors.” She said Verizon’s sponsored-data service, FreeBee, is used by Go90 to provide and works “much like toll-free calling, where the provider of the content, instead of its consumer, pays the cost.”

“Offering customers free services is a well-known competitive tactic,” she wrote. “There is no evidence that FreeBee – or Go90’s participation in FreeBee – has injured or could harm consumers or competition. In fact, FreeBee data provides tangible benefits to consumers by increasing the amount of what they can do and watch online, at no cost to them.”

Meanwhile, Marsh also argued that the FCC’s Wireless Telecommunications bureau “may not take unilateral action against Data Free TV because doing so would contradict existing Commission precedent” given the impending change in presidential administration.

On Thursday, FCC Chairman Tom Wheeler announced that he will leave his post in January after President-elect Donald Trump takes office. Trump is expected to appoint a more laissez-faire chairman at the FCC, amid industry speculation that he will seek to dismantle the agency’s network neutrality rules. Trump has recruited two conservative economists, Jeffrey Eisenach and Mark Jamison, for his transition team to focus on telecom policy, and both are considered in the running as Trump’s FCC chairman pick.

With Wheeler out, Republicans will have a 2-1 majority on the FCC when Trump moves into the White House. The term of another Democrat-appointed commissioner, Jessica Rosenworcel, ends on Dec. 31, and the Senate recessed last week without acting on her renomination. Republican FCC commissioner Ajit Pai is expected to be named interim chairman after Wheeler departs, and Pai is also a contender for the permanent job.

Verizon’s Grillo also questioned the timing of the FCC Wireless Telecommunications bureau’s raising network neutrality objections following Trump’s election. “Only now, almost a year after we deployed this innovative offering and during a time of transition to a new Administration, you write to express concern with FreeBee, and specifically with the participation of Go90 – Verizon’s mobile-first, over-the-top video service,” she wrote.

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