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Summary:

AT&T doesn’t give up on trying to monetize its pipes, and thanks to a lack of network neutrality on wireless networks, limited data plans, and a hunger for bandwidth-consuming mobile apps, it may have found a way to charge developers to use its pipes.

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AT&T won’t give up on trying to monetize its pipes, and thanks to a lack of network neutrality on wireless networks, its limited data plans, and a hunger for bandwidth-consuming mobile apps, it may have found a way to charge the likes of Facebook, Spotify and startups offering bandwidth-heavy applications for the privilege of sending their bits over Ma Bell’s cellular network.

According to a story in the Wall Street Journal, which quotes AT&T exec John Donovan, the company is looking at charging app developers for the data consumers use while playing with their apps. Donovan likened it to a 1-800-style service where users could download the app without the data usage being charged on the consumer’s bill. Instead, an app developer would pay for the downloaded bits. From the WSJ story:

What they’re saying is, why don’t we go create new revenue streams that don’t exist today and find a way to split them,” Mr. Donovan said. A customer nearing his data limit for the month could be more likely to download a movie if the content provider covered the price of the data transmission.

Haven’t we been here before?

The stated thinking from AT&T is that the pricing would encourage customers worried about their bandwidth caps to still try new services, but the reality is this is a brilliant way to implement the double-sided pricing model ISPs have coveted for years. And without net-neutrality rules protecting wireless applications that don’t deliver voice or video-conferencing style services, this could affect Facebook, Spotify, maybe Netflix and any startup considering a hot new bandwidth-using mobile application.

I have asked AT&T several questions about the service, and haven’t heard back. But at its heart, the toll-free numbers Donovan likened this plan to in the WSJ story may offer a “free” service to consumers in terms of not counting against their data limits, but it implicitly provides a toll on the participant providing the app. In the telephone world that generally was a company or a call center operated on behalf of a company. But in the data and app world, the proposed toll could hit small and large providers alike, and thus stymie innovation.

This fear of halting innovation by making small providers pay to transmit their bits across carrier networks was one of the bigger arguments for network neutrality — or the idea that service providers couldn’t discriminate against packets moving across their networks. But with this plan AT&T may have found a means to discriminate using pricing, and possibly could halt innovation by companies that can’t pay to offset their users’ data.

What a lovely app you’re building! It would be a shame if data-strapped consumers won’t download it

Full-on net neutrality doesn’t apply in wireless networks, unless an operator is trying to block a competitive voice or video services such as Skype. As I wrote last year, that lack of wide scale protection could still cause problems for chatting within social networks, online games and other services, meaning companies such as Facebook, group texting apps or popular games may be affected. I’ve reached out to the FCC and several startups to see what people think. The FCC had no comment.

It’s also unclear if such pricing would run afoul of net neutrality rules but the big opening here for AT&T is the rollback of its unlimited plans. Give consumers a $10 per GB overage fee and you’ve given them something to fear when downloading a mobile application. So if someone hesitates before playing Pandora or watching a YouTube clip, then half of AT&T’s job is done when it comes to coercing developers to sign up for this toll 1-800 plan. If some applications sign up to pay this fee, then consumers will become acclimated to their app habits getting paid for by their dealer, making the cost of delivering a successful app a lot higher.

And if those apps choose to pay that cost, then AT&T has managed to do what it has tried to do since Ed Whitacre famously put forth the idea in 2005 — force those pesky web companies to pay to use AT&T’s pipes. Way to play the long game, Ma Bell.

  1. Parasites…

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  2. Stacey – what if consumers like this model that’s being proposed? That as part of a subscription, for example, they would get to download content without using up their monthly data allowance? Should we always block these new business models on the basis that they might theoretically be open to abuse, even if they might appeal to consumers? Shouldn’t consumers – and not the mythical entrepreneur in the garage – be the ones protected by regulation?

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    1. Seriously? This is AT&T we are talking about. Are you a customer? I am. Have been for eight years. Not only that the revenue I generate for them has successively gone up over that time. This “toll” it is proposing will end up being as vague and open to AT&T’s interpretation as the data throttling. We unlimited data holders the company is mistreating with such indifference are most likely loyal because of the unlimited data. If that is revoked, I have no reason to stay with AT&T. Mythical entrepreneur? Have you read the numbers on where app development is headed? Those entrepreneurs are about as mythical as the Chinese.

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      1. I am a customer, yes. But read my other comment below – the word “toll” came from Stacey, not AT&T. And they’re proposing the analogy of 1-800 numbers, which suggest developer pull rather than AT&T push. The key question is whether AT&T sticks to that or not, and that’s something for all of us to track over time.

        And perhaps “mythical” was the wrong word – “proverbial” might have been a better choice. Point is, consumers exist in their millions, while successful entrepreneurs often end up being VC-backed rather than bootstrapped. But the threat to them is theoretical rather than proven so far, which was my point.

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    2. Jan, as a consumer, heck yeah I would like this plan … today. But in two years when I am still using lame services because it’s too expensive to get a new app to market, I may feel differently. Remember how crappy app stores were and how hard it was for developers on operator networks prior to the iPhone and Apple finding a way to drive a wedge into the old way of doing business? This is a business model change that could reinstate those results.

      Am I thinking that means regulation? Hard to say, I do think that if this succeeds and spreads across the whole industry it will be bad for consumers, developers and will also mean we truly don’t have competition in mobile. As such this is a canary in the coal mine, rather than the mine’s collapse. Make sense?

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      1. I think the key is that this would be at the behest of the developer and/or consumer, not something AT&T is planning to force on anyone (just as AT&T doesn’t force companies to sign up for 1-800 numbers, to continue their analogy). If, of course, they did start doing that, it would be both a different proposition and worrying from the point of view of stifling innovation. But that’s not the proposal here.

        I worry that every attempt at business model innovation is met with cries of net neutrality being tampered with before there’s any indication that that will actually happen. I think it’s a great idea for you (and other news organizations and bloggers) to track it as it develops, and cry foul if AT&T ever does start putting pressure on developers to do this, but I think it’s premature to do so now.

        Another point – you mention a couple of times that this is possible because there’s no strict net neutrality in wireless. But do you really think that if AT&T (or Verizon, or Comcast…) were to do this in wireline, it would fall afoul of net neutrality regulations there?

        And to your other commenter’s point, AT&T isn’t proposing to double charge – they’re proposing that in some cases the developer pay for the bandwidth *instead* of the user – providing a user benefit, not a double-dip on AT&T’s part.

        I think AT&T’s 1-800 analogy is actually helpful. Think of when 1-800 numbers are used – it’s often for customer service, where the customer would baulk at being charged for making a call when they’re already being inconvenienced. Imagine an app equivalent – a user has a problem, and the support rep wants to push them a how-to video to solve it, without the user incurring overage charges. Wouldn’t this be an ideal solution? Again, that’s what AT&T’s actually proposing here, though of course it may theoretically open the door to abuses in future.

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      2. If we are going to make 1-800 analogy, we have to keep something else in mind as well. In telephony, 1-800 customer has business relationship with a single provider and customers from any provider can make that 1-800 call. If the proposed service takes hold then the app developer has to have business relationship with every ISP in the world. This logistical difficulty will favor an established app provider in contrast to a new player. This is apart from the needed capital to support it.

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      3. Richard Shockey Tuesday, February 28, 2012

        Forget the 800 analogy why is this different from any Content Distribution Network deal like Akamai

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    3. At what point does this become a situation where I am paying my cellular provider to access a service/app that pays the cellular provider so that I will NOT use the data service I just paid for?

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  3. Travis Henning Monday, February 27, 2012

    Does ESPN pay to be on Comcast or does Comcast pay ESPN for the right to carry their content? I know its not a true apples to apples comparison, but at a certain level it seems to be similar.

    As a consumer, I’m worried that developers will stop experimenting and trying new things if this comes to fruition. Why spend resources developing something that may not take off and may require a payment to a carrier for the “privilege” of using the bandwidth that the carrier’s customer has already paid for. And AT&T wonders why they have such a bad rep.

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  4. Jan, your second points are great. I don’t have your faith in AT&T’s commitment to consumers, but did try to include in the article how this may not run afoul of network neutrality and how it’s really a market competition threat. Part of that may be because I don’t think regulators have a lot of power to enforce competition without resorting to network neutrality, but then we’re back on competition issues :)

    Anyhow, excellent comments and counterpoint. Thank you!

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    1. The way this article is written is a little confusing. From what I read elsewhere, this service has to be implemented by the developer. Why are you demonizing ATT as if they’re enforcing this among all app stores?

      I just started reading GigaOm again after over a year, but bullshit sensationalistic headlines/articles like this make me want to leave again.

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      1. I’m not demonizing AT&T. I am pointing out what it said so far, how that relates to what it has said in the past, and how market conditions could have a negative affect on startups and innovation. In the comments I’ve gone further and reacted to some good points brought up by others that see this as potentially favorable.

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      2. The article seems fair, but I do question the use of that photo. Masked perpetrators sticking a gun in your face? That’s a little over the top.

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  5. This is eerily similar to what happens with music in public spaces. The “consumers” or any live performers don’t see it, but any business playing copyrighted music has to feed into a music industry slush fund, adding to their overhead costs. The net effect has been to drive down the cost of the music. Live performers get less than they did 20 years ago, leading to a race to the bottom in quality. Which leads folks to less expensive ways of maintaining quality like DJ’s and just playing Muzak.

    I’ve been getting frustrated with AT&T throttling my iPhone and DSL. But when I looked up Comcast’s ISP pricing I was stunned at what you’re committed to once the introductory period is over. And I’ve had enough gouging by Verizon over the years to not want to go back to that.

    This gets dangerously close to anti-trust. But I guess that only applies to folks who can’t afford to keep the regulators on their side.

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    1. Comcast is no contract so youre never “committed” to anything. Oh, and Comcast works… fantastically, all the time. Not that I like Comcast, or appreciate their customer service and prices. But they seem to be the lesser of the two evils to me – again, because you at least get a good product (reliable and fast internet).

      I tried ATT twice. Once with DSL quite a while ago, and again with U-Verse. Both times it was horrifically bad and I switched back to Comcast.

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  6. This is extremely worrying and bad for entrepreneurs. e.g. if there is video streaming startup trying to compete with Netflix or Voice startup trying to compete with telco voice then it would extremely difficult given these policies. On the same note if they are worried about helping customers here are few ideas 1) Allow free tethering on all devices and let consumers consume the 2GB or whatever data plan they have paid for. 2) Let consumers sell their remaining monthly bandwidth in an auction to other consumers i.e. create a bandwidth marketplace (take commission here). 3) Allow data only plans

    2 GB / 3GB is plenty of data especially in US metros where there are plenty of Wifi hotspots to offload data. I think I am pretty heavy user of data but don’t go beyond 1 GB on wireless networks.

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  7. Aaron Belovsky Monday, February 27, 2012

    Shouldn’t this be optional? Developers could benefit from providing consumers with free downloads and monetizing other portions of their downloaded systems. It could make sense both ways if the option was given rather than enforcing strict limitation.

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  8. Stacey you really are blind in your one sided view of the world. Every single time anything like this comes up you see it from just one side: telco = bad. But if the pipes cant earn enough to make a living they won’t remain and then the apps that run on top will wither. Let the user and the market decide if this idea works. Get real and see both sides fairly

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    1. I think AT&T can eek out a living. After capital expenditures and dividends, they were left with about $4B in free cash flow from 2011. Verizon finished 2011 with about $6B if free cash flow. These telco’s are not exactly circling the drain.

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  9. Given that Apple controls what can be offered in the App Store, it could nip this in the bud by simply modifying submission policies to not allow such “AT&T Revenue+” apps.

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  10. The service and solution that Mr Donovan of AT&T is mentioning is much like what we have been talking to carriers and providers about for a while. Boxtop Solutions has developed a unique way to monitor data at the edge of the network and enable apps to provide free broadband to end users. The goal is to provide a way to avoid using up users data when using an app from a content provider that might normally eat into the users data allocation. The 1-800 reference used by Mr Donovan is indeed one of the terms we use when discussing this with the carriers. It is refreshing to see the term be reused. Take a look and see what you think http://www.boxtop.tv/about-us.htm

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    1. Thanks, Spencer, I’ll look at that.

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  11. Mukesh Aggarwal Monday, February 27, 2012

    What I am afraid of is eventually ATT will start charging both ways. Has happened in past several times (SMS, ‘ad free’ premium paid channels) so it is inevitable. We all become frogs in slowly heating water.

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  12. The goal is to keep springing crazy ideas like this and then poof metered data does not look so bad does it ?

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  13. I HATE AT&T, it is by far the WORST, the GREEDIEST COMPANY on this planet, I will pray AT&T dies SOON, America is way past due a telecom revolution, glad to see one spring from France.

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  14. If app developers are given the *option* to pay for their clients’ bandwidth usage, I see no problem with that. If, on the other hand, AT&T forces their new scheme on app developers, AT&T subscribers will simply not be able to use our upcoming accessory and its accompanying app. We are a struggling startup and do not have the means to pay for other people’s data traffic.

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  15. Years ago I posted http://rmf.vc/AssuringScarcity which cites the carriers’ own explicit strategy of creating scarcity so that we would have to pay for their services. Bits are bits so pretending that some red and some are green doesn’t make sense.

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    1. Richard Bennett Tuesday, February 28, 2012

      Pretending that some bits are zeroes and some are ones makes a lot of sense, actually.

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  16. Richard Bennett Tuesday, February 28, 2012

    I think you’re missing something. If a customer doesn’t want to use up their quota downloading new apps, and the app developer doesn’t want to pay for transit in the customer’s place, the customer can still download the app over Wi-Fi without anyone running into any extra costs. So the feature in question is something to encourage impulse shopping while the customer is connected via 3/4G. I don’t see that as a major issue.

    On the iPad, you can’t use the 3G to stream Netflix, and the quota’s not large enough for much streaming anyway. I could see a real benefit to permitting fat bandwidth apps supported by subscriptions to operate in a two-sided manner, especially if it guaranteed QoS on a heavily used cell.

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  17. John Donovan is using toll-free as an analogy. Until AT&T reveals full details of the plan, let’s give him the benefit of the doubt and not call out injustices where none exist.

    Toll-free calling is not compulsory for businesses. Of course the caller is not billed either … unless you’re using wireless maritime services, at which point you have international roaming charges (but I digress).

    In the cited WSJ article, Mr. Donavan refers to the nascent plan as “a feature that we’re hoping to have” and that AT&T would offer an “incentive to participate”.

    That sounds an awful lot like “optional” vs. “mandatory” to me.

    Just as consumers don’t pay for toll-free calls, if the analogy holds, then consumers wouldn’t pay for bandwidth used by toll-free metered apps either.

    As for consumer advocate arguments that “AT&T could stifle competition and shift the playing field toward well-heeled app developers and content providers” … by that logic, any telco offering toll-free services has stifled competition and shifted the playing field with every toll-free number they ever issued to a business.

    “By allowing some companies to pay for better services” is perhaps the WSJ article’s most egregious leap in logic. Tell me: Where/when did AT&T acknowledge that the bandwidth in this still emerging plan would somehow be of higher quality? Answer: They didn’t. All I gleaned is that it could be paid for by businesses. Accent on could.

    Until AT&T has more exacting info to say about this, don’t go jumping to fatal conclusions, folks.

    The root faux pas here is not with AT&T, but in WSJ’s misleading headline: AT&T May Try Billing App Makers. It reads like it’s being forced on them, even when Mr. Donovan’s comments suggest otherwise.

    Sheesh, read the WSJ article, as in REALLY READ it! C’mon GigaOm, I expect better from your writers. :(

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    1. “Where/when did AT&T acknowledge that the bandwidth in this still emerging plan would somehow be of higher quality?”

      I don’t think AT&T specified a difference in quality, per se, but it is certainly possible they could offer lower prices to some companies, creating a tiered environment where big players can freeze out new entrants who lack the user base and capital to pay for their customers’ data upfront.

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  18. Kindof like charginf General Motors and Ford for their vehicles using the roadways while charging the owner of the vehicle for the licence amd fuel taxes. Very evil.

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  19. Thomas Albright Friday, March 2, 2012

    If you don’t want to see AT&T do this, please consider signing the petition on change.org. If enough people protest, maybe AT&T will change its mind. After all, that’s how a bunch of people got Bank of America to change its mind about debit card fees. http://chn.ge/wpeZTt

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  20. Stacy, what you fail to appreciate is the network is operating as a for profit business. It is a fact, that the success of OTT Internet companies such as Skype, Facebook, Google, Netflix are ALL predicated on “FREE” Transport pipes. The consumer is getting charged because there is no mechanism to charge the OTT folks. Since the network is a TWO communications medium both sides (consumer, Internet APP) need to pay a FEE to use the network.

    The only real question is what is the real monetary value associated with price of carriage ? If you do not like the “troll toll” then you do not need to use the mobile device for the application.

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  21. These are for profit networks – not charity networks.

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  22. AT&T should charge OTT folks for carriage. First and foremost tho is that consumers should have more choice in MMO’s – which today they really do not.

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