With “Sponsored Data” AT&T is double dipping. And that’s just dirty

iPhone with AT&T logo crossed out

AT&T, under the guise of “sponsored data,” launched a sneaky attack on innovation Monday — though it has been talking about it for a while, as reported by my colleagues in the past. Ma Bell, disingenuous as always, is touting examples of movie companies buying data to show trailers and health insurance companies to show instructional videos. It’s a good example of how big phone companies and cable companies whitewash their true intentions.

This is the first step of what AT&T has always wanted — a return to the old fashion, usage-based circuit switch model. (Stacey Higginbotham explained all that in her post last year.) Today’s news seems innocuous at best, but in the end it is an assault on the innovation. Given a toothless FCC with compromised values, these “examples” are a good way for Ma Bell to hide from consumers and regulators what I believe is double dipping. And while it might seem like a good way for AT&T to make more money; in the end this will be like cutting off the nose to spite the face. The final price will be paid by none other that the startup ecosystem that has blossomed in the post-iPhone era and has actually lead to the data usage boom that has allowed Ma Bell to keep posting handsome earnings growth over past few years.

Theoretically, since network neutrality doesn’t apply to wireless networks, AT&T is well within its rights to introduce something like “sponsored data.” More so, it is also entitled to charge whatever it wants from its customers. However, what Ma Bell is not allowed to do — or rather, shouldn’t be allowed to do — is double dip.

Danger thin ice. Keep off.

Dollar gouging dudes

After all, the end customers — that is, you and I — are paying top dollars for the bandwidth (the data plan) they sell. For some it is about $10 a month, and for others who prefer bigger data buckets, it is closer to about $50 a month. That amount of money comes with an explicit understanding that the end customers can use any app, anytime without AT&T playing any favorites. This level playing field has allowed many small companies to bloom — Instagram and Snapchat are just two such examples of startups that benefited from a wireless data network (that didn’t play favorites) and the smartphone camera boom. And there are countless others – Whatsapp, Dropbox, 1password, Moves, Cut The Rope, Angry Birds, Lose it, Sunrise – who have seen their fortunes change because of this even playing field.

Now, if Snapchat is getting popular, a much more deep pocketed Facebook can start pushing its Poke or Chatheadz apps by sponsoring the data it costs you and I to use these apps. Sunrise doing a better job than Apple or Google? Well, now Google can make Google Calendar free of data surcharges. Now imagine this with a messaging startup — say Viber — that is locked in with competition with Microsoft-owned Skype, or god forbid, Yahoo Mail over a competitor. The deeper the pockets, the easier it is for big giants to use “free” as a big stick to beat back the upstarts.

It is not the first time we have worried about this. In 2009, Allan Leinwand wrote in a guest post:

More importantly to a VC, imagine funding a startup whose offering depended on the use of a service provider’s last mile. Without net neutrality, there would be no guarantee of a free and open market and by extension no guarantee of the delivery of goods and services. Such an environment would hinder, not foster, innovation and economic growth — core principles of capitalism and venture capital investing.  Startups need the ability to buy services from providers on a fair and level playing field — even if their services may compete with those of the provider itself.

That piece was about wireline networks. However, the epicenter of technology has since shifted to mobile networks and the same arguments do indeed hold true today as well. The new sponsored-data strategy will have an implication on how apps grow in the future — it is only a matter of time before this is completely abused.

Startups: the time to worry is now

If the costs of starting and launching an app become high, it is only a matter of time before the startup community refocuses its attentions away to something else, finding a place where resistance is low and opportunity is big. A lot of people — including AT&T and its management — have forgotten that in 2007, at the time iPhone launched, the U.S. used to lag behind Europe, some parts of Asia and Japan in the mobile sweepstakes.

The smartphone boom and the rise of the app economy helped the U.S. become a leader in the mobile industry. It happened because we married the old fashioned flat and free internet principles to these new kinds of pocket computers. Everyone has won — the consumer, chip makers (Qualcomm), Verizon and AT&T, Apple and Google Instagram, Snapchat, Twitter and thousands of other apps are winning because of this working marriage of internet, computers and wireless.

AT&T is simply screwing with this chemistry, setting the stage for others like Verizon to follow.

My colleague Stacey Higginbotham is being more magnanimous about AT&T and its intentions, but I am too old, and too skeptical of phone companies to actually think they are doing the right thing by their customers. From the time I started covering the industry — to now when I have officially washed my hands of it — I can safely say, the phone companies always want to head back to the good old days: charge for everything per minute and then charge for everything else. (Carrier decks — remember those?)

What phone companies have always wanted is a quasi-circuit switched model superimposed on the internet. Now thanks to a complacent FCC and a bought-and-paid for legislative system, Ma Bell is pretty close to getting what it wants. Phone companies & their ilk (aka broadband and wireless data providers) to me were and will always be price gougers (except with better lobbyists) — looking for ways to double dip.

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