Blog Post

AT&T’s Sponsored Data plan isn’t the end of net neutrality but it is a new model for wireless

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

AT&T’s(s t) sponsored data announcement will generate outrage in many circles as net neutrality fans and those worried about the next generation of startups cry foul over Ma Bell’s plans to let companies pay to let certain content bypass AT&T’s data caps. But depending on what AT&T charges and how competitive you think the wireless market is, I can’t work myself into a froth just yet.

Instead, based on the implementation, I see an evolution of the internet on the mobile side that makes sense given the limitations of spectrum and the demand for mobile content. As people gave up their unlimited data plans a few years back (because carriers would have made their lives miserable otherwise), the wireless operators now have the perfect stick to beat both the end consumer and the content companies into participating in a double-sided market. One where the consumer and the content provider both pay AT&T.

Could Microsoft buy Skype calls that wouldn't count against your data cap?
Could Microsoft buy Skype calls that wouldn’t count against your data cap?

In the Sponsored Data examples, AT&T envisions a movie company buying a pool of data so it can show people a trailer for free or a health insurance company making forms or instructional videos available for free to its clients. Companies would purchase sponsored data via an API and can offset the end consumers’ data costs for a general type of content (all VoIP calls on Tuesday are sponsored by Google(s goog)), specific apps (Facebook(s fb) buys a pool of data so all Wall posts won’t count against your data cap during the Thanksgiving week) or for specific content as mentioned above.

An AT&T spokesman says that the process is automated thanks to an API and back end built and supported by Amdocs(s docs) and Ericsson(s eric), and added that the price paid by the companies for the data would be “in range with those paid by consumers.” That last bit is almost nonsensical given the consumer data prices vary tremendously depending on the type of plan a consumer is on. However, when the API is launched presumably we’ll be able to see those prices.

A new advertising model or the end of net neutrality

Is this fair? While there are plenty of valid arguments about whether data caps are the right way to solve for worries about network congestion, in the mobile world they have become the de facto standard at the big operators. And even plans that offer unlimited data reserve the right to slow your speeds or throttle your usage in times of congestion.

Meter limit reached - time expired

So if you accept data caps as a reasonable way for wireless carriers to manage their networks, then letting companies pay to let certain content or apps bypass those caps seems like a valid innovation in the carrier business model as opposed to a subtle violation of network neutrality. Of course, there are huge debates over how competitive the wireless market actually is, and with AT&T pushing this, it’s likely that Verizon, which has also signaled an interest in such models, might follow suit.

So you’ve got the two largest carriers both pushing a plan that uses caps as a stick to get content companies to pay for access to end user eyeballs. On mobile networks this may not make people happy, but it’s not inherently evil or even problematic. AT&T says it won’t prioritize the packets that companies send as part of the sponsored data buys, which means the only penalty is the one that organizations like Free Press are upset over — that this will hurt startups.

The effect on startups

I won’t lie. It could. What this program is saying is that some consumer content will be free for mobile subscribers on the AT&T network if an organization wants to pay to offset those data costs. So a customer might be able to shop at Wal-Mart(s wmt) on their mobile for free while having to pay a data charge to surf on Amazon(s amzn). Or they might get video from Hulu gratis and have to pay to stream Netflix(s nflx).

Wal-Mart Store, walmart

However, an AT&T 4G connection is not the only way to stream video, so a consumer will have to now figure out who might have a deal with his or her wireless provider or seek out an alternative if they want to avoid data charges. Right now, consumers already do that when they choose to use Wi-Fi for watching video instead of a cellular connection. Honestly this is where consumers will have the most to lose — it will be more complicated to navigate a wireless contract because you may have to account for these side deals carriers might strike for sponsored content or entire channels.

But this idea that it will hurt innovation is a harder argument to make, I think. AT&T has chosen to implement this using an API. Unless it imposes incredibly high prices or onerous terms, it has created a neutral way for others to buy sponsored content that doesn’t require a huge sales team or some crazy negotiating by the CEOs of large companies. A startup might decide that free data to encourage others to uses its video-sharing app is how it wants to spend its launch budget. As long as it can do so without some onerous terms or certifications, this could be beneficial for it. It also opens the door to some questionable sponsored data options that might see AT&T imposing a filter (what if NAMBLA wants to support free downloads of questionable content?).

The situation here is akin to political advertising, where many of us recognize that the candidates with the most money to spend on advertising often wins, though the system is still open to all contenders. If we begrudgingly accept that idea in electing our government, why would we blanch when a wireless company (that we can switch from) tries to implement a business model that might have a similar result? It may not be ideal, but it’s not unfair, and as the internet becomes a bigger and bigger business it’s ridiculous to think that business interests and business models that seek to capitalize on the amount of time we spend online won’t arise.

Here’s where AT&T’s plan becomes a problem

But — and there’s a big but here. I may not like this model on wireless and I don’t see it as a huge public policy problem worth of regulatory intervention, but if you moved this model to wireline I would have a fit. And that’s because consumers have less choice in wireline internet service and because capping broadband on wireline networks is not about managing a limited supply but solely about generating revenue and preserving the pay TV business.

This is why Gigaom is against data caps on wireline networks. Because on most forms of consumer wireline broadband, providing the capacity to meet consumer demand is possible without caps and while making a profit. Ask Sonic.Net or Google.

Those profits may not be what the incumbent providers are used to, but that’s a different issue — and why we think the communications industry needs to adapt. So as providers like AT&T implement data caps on their wireline networks, the threat of them using those caps to bring in the same two-sided business model on that network looms. And that would be a problem. Because on those networks, users don’t have as much choice on provider and the content companies don’t have another route to the consumer.

But on mobile, that’s a tougher argument to make, even if the end result of AT&T’s Sponsored Data may be a higher price tag for companies that want to reach select mobile subscribers.

15 Responses to “AT&T’s Sponsored Data plan isn’t the end of net neutrality but it is a new model for wireless”

  1. joeweinman

    Hi Stacey…you may recall I predicted this right here at GigaOM over three years ago: . It’s really not that different than Amazon covering the data transport cost of an ebook into my Kindle device over Whispernet. Why not also pay for the cost of downloading that ebook to the Kindle app in my tablet or smartphone? I’d be happy to move to a less expensive cellular data plan thanks to third parties subsidizing part of my consumption for me. In the real world, the provider pays physical transport costs for free goods (postage for junk mail) or incorporates that transport cost into a total bill (Shipping & Handling). Even if all it does is shift costs, it increases transparency. Right now I have no idea what the hidden costs of marginal data consumption are for particular services or content.

  2. Frak ATT, they wanted to end all Net neutrality a while back and now they are finding new ways to do so. The boycott starts here!! I will do with out before I EVER do business with these schmucks! I hope ATT goes the way of Nokia and Microsoft! You are just a dumbpipe and should act like one.

  3. Jonathan

    For me, the choice between cellular and wireline is a moot point – nobody will provide me wireline service; the closest available is 2 houses up the road from me but they won’t extend it to me and have no legal obligation to, so I have the choice of cellular or satellite, both of which have bandwidth limits.
    Fortunately for me, I still have an unlimited data plan (for now).

  4. Re: wireline cap

    I’d rather have an unlimited connection at a usable speed with proper management hardware and policies in place to limit users speeds during prime time as needed to balance usage during peaks, and allow the provider time to spend that revenue on expanding their infrastructure and purchasing additional bandwidth… rather than offering excessive speeds that nobody really needs at high costs such as $10/Gb that just lead to average users ending up owning hundreds of dollars in overage fees for bandwidth after business costs that in reality costs less than a 10% of that fee to provide.

    This plan to offer sponsored bandwidth is just a disaster waiting to happen when people *think* they’re getting free bandwidth, but have no way to track, prove, or tell really when they are getting it and end up with expensive overage bills.

  5. This is so anti-consumer it’s not even funny. If you’re paying $30 a month now for data you’ll still be paying the same $30 a month even if all your apps and sites are covering AT&T’s costs.

    • I don’t believe that every content provider or service I’d want to access would go the pay AT&T route, so my $30 would still be buying me something of value. And it is, as Om says, double dipping, but it’s a free market and such double-sided business models exist in other realms like pay TV or media. That being said, the internet abhors such markets so we’ll see what happens. AT&T might find itself stuck negotiating with big name brands once consumers grow used to sucking at the teat of free ESPN for example. If Verizon offers ESPN a better rate or an exclusive, to gain subs, then AT&T might find itself in a really unfortunate mess of its own making.

      I don’t like it, but it’s not something that I can condemn out of hand.

    • If telcos are going to inspect content and apply policies, they could:

      – sell phones with “free data” that only access one content provider, e.g Facebook Phone

      – apply content filters, e.g. UK / China firewalls

      – inject advertising into “indie” content, e.g. DNS hijacking already done by ISPs

      – charge a higher fee for content that is not MPAA/RIAA approved

      – implement pay-per-view billing systems for implicit content paywalls, e.g. instead of your data cap being N gigabytes per month, it could be Q telco credits per month, with different websites having a different charge in credits per page view

      – associate telco subscriber with airline frequent flyer or credit card issuer who agrees to pay all data charges in exchange for a copy of all data traffic, e.g. Google Fiber free offer

      – provide “free data” to people who are approved for airport security fast track

      – provide “slow data” to people on the no-fly list

      – provide “fast data” to those who share their mobile phone GPS location with health insurance companies

  6. rationaleobserver

    Last time I checked we live in a free market economy; so what is wrong with a business decision that is “…solely about generating revenue and preserving the pay TV business?”

    Until such time that the network operators are not for profit or regulated like a public utility with a guaranteed rate of return, can someone provide a rationale argument for why trying to maximize profits and protect existing business models is so wrong?

    • On the wireline side it’s problematic because it’s not a competitive market. Most consumers have a choice of only two providers. Maximizing profits isn’t the issue, the lack of competition and profit maximizing behavior is the problem. Especially since it stands in the way of innovation.

      • rationaleobserver

        It’s hard to see where the actions of carriers have been harming innovation when technology, services, etc. are moving faster now than ever. Aren’t all these concerns regarding carriers innovating their business models more the concerns of OTT providers who are not paying for their fair share of distribution costs rather than actual concerns; especially when there is a lack of any evidence that – for example – that there have ever been any violations of net neutrality by US operators that caused real harm?

        Where is the evidence that a two-sided business model would harm innovation? Is there market data? A long record of peer-edited academic research?

        And, are you saying that a for profit enterprise shouldn’t maximize their profit? Why?

    • ummm excuse us, but The ISP’s are buying this. They corrupt our government and cause untold corruption. The ONLY people that will benefit are Wealthy.

      America WILL NOT survive what the corporations are doing to it.

      But that is their right ? to destroy our nation? we are capitalist country, this might as well be open warfare with guns. The internet has become to critical to the world. This is a new era. Global conglomerates are out of control and will destroy societies, just as human history has shown us.

      YOU are part of the problem. I hope your job or whatever you do for a living gets out sourced to China.

      • Bella Lang

        That’s funny you should say ” I hope your job or whatever you do for a living gets out sourced to China.” . This poster is obviously a paid astroturfer working for the telecoms to get support. This person may actually be already in China. Sad

  7. Re the wireline caps, 100 GB/month is about 0.3 Mbps running round the clock. Given finite backend capacity, would you rather have a connection capped at 0.3 Mbps with no monthly cap, or a 1.5 Mbps connection with a 100 GB monthly cap? For most of us, monthly caps are our friend. They let us burst data at high speed when we need it, as long as we don’t need it round the clock. This is one of the most important advantages of packet switched networks over circuit switched networks.

  8. Thomas Sachson

    Toll-free data will be a great boon for consumers — if done properly — with digital content and service providers competing to provide as much free bandwidth to their customers as possible — SO LONG AS the carriers don’t slow down for-fee usage / bandwidth in the process. The mechanism for accomplishing this is very coherently explained at