AT&T Sponsored Data plan sparks activist outrage

Posted By on Jan 8, 2014 | 0 comments

On Monday, AT&T announced plans to offer Sponsored Data service, whereby businesses will be able to pay any data fees incurred by mobile users for accessing their applications or content.  This would allow users to access those applications and content, without concern for incurring data charges.  AT&T aptly likened the program to 800 phone numbers and free shipping offered by internet retailers, and called it a “win-win for customers and businesses.”

Net neutrality activists wasted no time in expressing their disagreement and outrage.

The Verge declared it unfair competition, “bad for the internet, the economy, and you.”  Public Knowledge declared it a “tax on anyone who wants to connect to” AT&T’s subscribers and a “tremendous loss for everyone” other than AT&T.  Free Press declared it “a wolf in sheep’s clothing” and “the latest example of how big companies are trying to reshape the open Internet.”

Fair warning: net neutrality is a hot button issue for me.  I was long frustrated that the telecommunications industry—and the cable industry, especially—was, and mostly still is, so silent in responding to the wild assertions that have been repeatedly made and reinforced by net neutrality activists.  These assertions were allowed to be spread and reinforced without any serious critical challenge.

So, as I launch my new blog, I’ll take this opportunity to start a serious discussion about the real issues associated with so-called “net neutrality.”  There’s a lot to address, though, and nobody likes an unending blog post (this one will be long enough, as it is), so I’ll just start the discussion here, and plan to continue exploring net neutrality issues in future posts.

In recent years, “net neutrality” has been a frequent rallying cry among some consumer activists, politicians, regulators, and strangely enough, some of the world’s largest and most powerful corporations.  Politics makes strange bedfellows.

Among the various parties, and over time, the scope of what is meant by “net neutrality” has changed and significantly expanded.  From beginnings in the notion that ISPs should not block specific forms of traffic (and in particular, traffic from competing service providers), into eventual calls by some parties that no bit should ever be discriminated from any other bit, in any way, for any reason whatsoever.

A common theme is that, absent regulation, the internet as we know it will cease to exist, as greedy ISPs seek to benefit their bottom lines at the expense of their customers.  Nevermind that there are virtually no actual examples of malicious interference (more on this in a future post), or the fact that most large ISPs actually do face competition that requires them to actually satisfy customers in order to retain them.

Unquestionably, each party has good reasons for the positions they take—some well-meaning, some self-serving.  Nevertheless, the policies proposed by net neutrality advocates are neutral to neither consumer nor commercial interests. In fact, the policies they propose would advantage selected commercial interests, while harming, rather than helping, consumers.  (Much more on this in a future post.)

In recent years, the scope of “net neutrality” has been expanded by some to include opposition to any form of metered billing for internet access.  And each of the articles cited above warns of serious, negative economic consequences if AT&T’s service proceeds—two, in large part, based on assertions that metering is inherently bad.

From an economic perspective, however, metering actually serves (or would serve) an important role in encouraging efficiency.  What’s more, in a world where some users consume enormous amounts of bandwidth (generating very large costs), while other users consume much smaller amounts of bandwidth (generating much lower costs), it’s patently unfair to force light users to subsidize heavy users by flat-rate billing.

We’ll explore this general issue of metering in more detail in the future.  (It actually ends up being intimately entwined with issues underlying the whole cable television/multichannel video programming distribution paradigm, and how that paradigm will transform in the future.)

For the moment, let’s just examine one specific assertion, made by The Verge:

…in reality it’s a way for AT&T to levy taxes on companies who can afford to pay. That has huge implications for the free market of the internet: if YouTube doesn’t hit your data cap but Vimeo does, most people are going to watch YouTube. If Facebook feels threatened by Snapchat and launches Poke with free data, maybe it doesn’t get completely ignored and fail. If Apple Maps launched with free data for navigation, maybe we’d all be driving off bridges instead of downloading Google Maps for iOS.  That’s not fair competition; that’s just pay-to-play. [emphasis added]

But this is just dead wrong.  So long as all competitors, large and small, have equal access to the program, there’s nothing unfair about it.  It is simply another way to compete.  In fact, it’s a way that small upstarts might choose to distinguish themselves from larger, more established rivals—much as 800 numbers and free shipping offers were used by upstart internet (and before them, mail-order) retailers, to compete against larger, more established brick-and-mortar rivals.

And herein lies the true issue that should concern activists and policy-makers.  If programs like AT&T’s do not offer equal access—if they are not accessible to all comers, or if large companies get the benefit of much better rates than small companies—that would create unfair competition: unfair competition that favors large, established companies over their smaller, upstart rivals.  That is an actual problem which presently pervades many industries, and warrants thoughtful policy review (in many industries) to determine whether competition and consumer interests would be helped (or harmed) by further regulation.

For more discussion on net neutrality issues, see our article on the striking down of the FCC’s Open Internet Order.