AT&T and Verizon Facing FCC Scrutiny After Exempting Their Own Apps From Data Caps

Both AT&T and Verizon offer apps and streaming services that don't count against the data cap they impose on customers, a practice that the United States Federal Communications Commission does not approve of.

The FCC this week sent letters (via The Verge) to both Verizon and AT&T, claiming that the data cap exemptions, called "zero rating," raise net neutrality concerns and could impact consumers and competition.

AT&T and Verizon each offer programs that allow content providers to pay a fee to be exempted from customer data caps, programs that they themselves take advantage of with their own apps and services.

DirecTV Now, AT&T's recently introduced streaming television service, does not use data when streamed on the AT&T network, for example. DirecTV Now pays for the data, but as an AT&T subsidiary, AT&T is just paying itself. Verizon, meanwhile, exempts its own Go90 streaming service from using data on the Verizon network and does not pay fees to do so.

The FCC first sent a warning to AT&T in early November, but was not pleased with the response it received from the company. In this week's letter, the FCC says that it has come to the "preliminary" conclusion that the Sponsored Data program inhibits competition, harms consumers, and violates Open Internet rules. It asks AT&T to answer a series of questions about its Sponsored Data practices.

We find that those responses fail to alleviate the serious concerns expressed in our November 9 letter regarding the potential anti-competitive impacts of a wholesale Sponsored Data program for zero-rated mobile video services. Indeed, your submission tends to confirm our initial view that the Sponsored Data program strongly favors AT&T's own video offerings while unreasonably discriminating against unaffiliated edge providers and limiting their ability to offer competing video services to AT&T's broadband subscribers on a level playing field.

A similar letter sent to Verizon expresses concern over the "FreeBee Data 360" program and says it has the potential to "hinder competition and harm consumers" because Verizon does not need to pay to participate in the Sponsored Data program when it exempts its own app, but competing content providers do.

The position that the participation of Go90 in FreeBee Data 360 is the same as that of third parties, however, fails to take account of the notably different financial impact on unaffiliated edge providers. For example, while there is no cash cost on a consolidated basis for Verizon to zero-rate its own affiliated edge service, an unaffiliated edge provider's FreeBee Data 360 payment to Verizon is a true cash cost that could be significant.

AT&T and Verizon have responded to the letters sent by the FCC in statements given to the media. AT&T says the government should not take away a service that's saving customers money, while Verizon says its practices are good for consumers, non-discriminatory, and consistent with the rules.

The two carriers have been given a December 15 deadline to respond to the FCC's concerns.