With just over a week left as chairman of the Federal Communications Commission, Tom Wheeler today accused AT&T and Verizon Wireless of violating net neutrality rules with paid data cap exemptions. But with the FCC about to switch to Republican control after next week’s inauguration of President-elect Donald Trump, AT&T and Verizon can likely keep doing what they’re doing without any chance of punishment.
Wheeler described his views in a letter to US senators who had expressed concern about the data cap exemptions, or “zero-rating.” FCC Wireless Telecommunications Bureau staff today also issued a report concluding that AT&T and Verizon zero-rating programs are unfair to competitors. Both Wheeler’s letter and the staff report can be read in full here.
The main issue is that AT&T and Verizon allow their own video services (DirecTV and Go90, respectively) to stream on their mobile networks without counting against customers’ data caps, while charging other video providers for the same data cap exemptions. The FCC also examined T-Mobile USA’s zero-rating program but found that it poses no competitive harms because T-Mobile offers data cap exemptions to third parties free of charge. T-Mobile also “provides little streaming video programming of its own,” giving it less incentive to disadvantage video companies that need to use the T-Mobile network, the FCC said.
Wheeler, who also faulted AT&T for not providing full responses to staff questions, wrote:
While observing that AT&T provided incomplete responses to staff inquires, the report states that the limited information available supports a conclusion that AT&T offers Sponsored Data to third-party content providers at terms and conditions that are effectively less favorable than those it offers to its affiliate, DirecTV. Unlike T-Mobile, which charges all edge providers the same zero rate for participating in Binge On, AT&T imposes hefty per-gigabyte charges on third parties for use of Sponsored Data. All indications are that AT&T’s charges far exceed the costs AT&T incurs in providing the sponsored data service. Thus, it would appear that AT&T’s practices inflict significant unreasonable disadvantages on edge providers and unreasonably interfere with their ability to compete against AT&T’s affiliate, DirecTV. The structure of Verizon’s FreeBee Data 360 program raises similar concerns. We are aware of no safeguards that would prevent Verizon from offering substantially more costly or restrictive terms to enable unaffiliated edge providers to offer services comparable to Verizon’s affiliated content on a zero-rated basis.
But the FCC isn’t ready to take any enforcement action against either carrier. That process would be lengthy. In a separate case, the FCC proposed a $100 million fine against AT&T in June 2015 for allegedly misleading customers about throttling of unlimited data plans, but it still hasn’t collected any money. AT&T challenged the decision, and the case was never resolved. As we previously reported, AT&T and the FCC could have agreed to a settlement, or the FCC could have issued a final ruling requiring AT&T to pay a fine (which AT&T would have challenged in court), but neither happened.
The FCC passed its net neutrality rules in February 2015, but it did not include a strict ban on zero-rating. Instead, the FCC decided to evaluate zero-rating on a case-by-case basis to determine whether specific implementations harm consumers or competitors.
Ultimately, the FCC’s evaluation of AT&T and Verizon took too long. Republican Commissioners Ajit Pai and Michael O’Rielly will become the commission majority after Wheeler leaves the FCC on January 20. Pai and O’Rielly have criticized the investigation of AT&T and Verizon and say they intend to overturn the net neutrality rules.
Pai said today that the FCC staff report “does not reflect the views of the majority of commissioners,” and that it “will not have any impact on the commission’s policymaking or enforcement activities following next week’s inauguration.”
Wheeler’s letter to senators acknowledged that paid data cap exemptions will likely proliferate. “Given the powerful economic incentives of network operators to employ these practices to advantage themselves and their affiliates in various edge service markets, staff is concerned that—absent effective oversight—these practices will become more widespread in the future,” Wheeler wrote.
Even so, Wheeler defended his case-by-case approach to zero-rating. While some programs “might restrict consumer choice, distort competition, and hamper innovation,” others “might benefit consumers and competition,” he wrote.
Wheeler’s letter came in response to a November letter written by Senators Edward Markey (D-Mass.), Ron Wyden (D-Ore.), Al Franken (D-Minn.), Bernie Sanders (I-Vt.), Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wisc.), and Richard Blumenthal (D-Conn.).
When contacted by, Verizon today said, “The [FCC] staff’s positions are duly noted. We don’t agree with their view on free data and we don’t think our customers do either. Hopefully the next FCC will take into account the views of our customers who greatly benefit from watching professional football, soccer, basketball and other great content on Go90 free of data charges.”
AT&T issued a statement, saying, “It remains unclear why the Wireless Bureau continues to question the value of giving consumers the ability to watch video without incurring any data charges. This practice, which has been embraced by AT&T and other broadband providers, has enabled millions of consumers to enjoy the latest popular content and services—for free. We hope the government continues to support a competitive marketplace that lowers costs and increases choice for consumers.”