Despite Limited Interest In AT&T's Sponsored Data, Company Still 'Bullish' On Its Awful Precedent

from the creative-gatekeeping dept

After hinting about such a project for some time, you might recall that AT&T introduced "Sponsored Data" at the company's developer summit around this time last year. It works like this: if companies pay AT&T a fee their content is specifically allowed to bypass AT&T's already entirely arbitrary (as in, not tied to any real world costs or network conditions) usage caps. To hear AT&T pitch it at the time, this would be akin to "free shipping" or a 1-800 number for data, and an incredible boon for consumers who want to conserve their pricey data allotments.

While some consumers seemed quick to applaud the idea, they weren't understanding the awful precedent AT&T was setting. If you allow AT&T to set arbitrary caps then charge companies to bypass them, you're injecting a company with a rich history of anti-competitive behavior into a content and service ecosystem that works much better with it out of the way. Also, as VC Fred Wilson correctly noted at the time, such a model puts smaller companies and developers at a distinct disadvantage to their deeper-pocketed counterparts. What AT&T pitches as a great creative boon to industry is actually AT&T just desperately trying to retain gatekeeper power.

While AT&T executives have spent two years claiming that interest in this idea is through the roof -- one year later, just ten (mostly smaller) companies have signed up for AT&T's pilot. While Sponsored Data played a starring role at last year's AT&T Developer Summit, executives didn't mention the project once during this year's event. To hear AT&T tell it, there's still tremendous interest in the idea -- despite the fact there's clearly not tremendous interest in the idea:
"Nonetheless, AT&T CMO David Christopher told FierceWireless that the carrier is still "very bullish" on the program...What we said last year, and what we've continued to say, is Sponsored Data is a really unique, interesting capability that is going to take time for it to evolve into various business models," Christopher said in an interview. "We are seeing interest from a variety of developers and content owners in Sponsored Data."
While some companies aren't eager to court net neutrality controversy, others seem entirely oblivious to the threat such a model poses to innovation and smaller developers. Beyond just the obvious neutrality implications, the idea doesn't appear to be gaining traction with companies because new wireless shared data plans have most people signing up for significantly much more data than they need in order to avoid costly overages. In other words, when you have more cellular data than you need, and you're spending a lot of additional time using Wi-Fi, having a few apps or ads that don't impact your data allotment doesn't mean all that much in practice.

As such, it seems like only a matter of time before AT&T mutates the Sponsored Data idea into something notably more awful with a better sales pitch. As I've noted previously, while most of the net neutrality discussion focuses on outright blocking of websites or throttling of connections, the real danger zone is these kinds of "creative" pricing efforts where carriers try to use their gatekeeper power to desperately avoid being dumb pipe providers. It's here, under a glossy coat of PR paint where the real neutrality violations are going to occur, but as we've seen, it's difficult to craft neutrality rules that protect consumers from obnoxious shenanigans -- while allowing for real pricing and service experimentation (should that actually happen in the broadband sector someday).

In this case, we appear to be just lucky in that AT&T's implementation was just so bad most companies were bright enough to steer clear. That's not always going to be the case. As we've seen with the positive reaction to T-Mobile's decision to let the biggest music streaming services bypass its cap (which of course hinders smaller companies or nonprofits not big enough to get whitelisted), it's very clear it's possible to create new business models that tilt the playing field and screw smaller companies and consumers -- all while receiving thunderous applause for the effort.
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Filed Under: net neutrality, playing favorites, sponsored data, zero rating
Companies: at&t

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  1. icon
    Derek Kerton (profile), 6 Feb 2015 @ 7:13pm

    Re: Re: Domino Theory Isn't Right

    Nah. Not on board. I know the theory that packets of data are free is common here at TD, but that's where I diverge with the rest. Mike often makes that case, and Karl too, if I recall correctly.

    But there is a very real investment in the network infrastructure, and also an ongoing expense in operations. And when existing network capacity is filled up, significant capital must be invested to increase capacity for the newer traffic.

    And there's nothing theoretical about that. Data traffic has grown phenomenally year over year, every year. We could not carry all those bits we send today using 2008's network assets, nor 2012's.

    AT&T spent $19 Billion in one year on their network. That's real money. Separately, how do you think companies like Cisco, Ericsson, HP, Huawei, Alcatel, etc. all make their big revenues every year? That money comes from YOU, from your per GB fees, through the carrier, and on to their equipment suppliers. Ericsson will not provide network upgrades for free, so AT&T has to charge those who use data to pay for the upgrades.

    So, a fair way to pay for a GB of data is based on the average cost (in operational cost and capital rent) of that GB of data, plus some profit margin.

    Sure, the US carriers margins are too high, because competition is too light. But the basic notion that a GB has a cost and a price is entirely fair, and not just some wacky imaginary construct to rape the customer. It's not the only way to charge for the network, but it's an OK one.

    If you'd rather pay some rent for some network capacity, then that's just another model. It might work. You'd end up paying near the same amount, though. It would be harder to allocate the higher payments to the people that use more, too.

    I would say the construct that "transporting a packet is free" is the fictional construct. It's only true if significant investments were made, and continue to be made, in over-capacity of infrastructure. You make a lot of assumptions there, and you're making them with someone else's capital.

    "The network pays for it's bandwidth capacity not it's network throughput."

    True. But...

    Analogy time:
    Restaurants have very high fixed costs, and some marginal costs in labor and food.
    Do you walk into a Subway and say "I won't give you $6 for this sandwich, that's a farce. The Sandwich is $3 fixed costs, and $3 variable costs. The fixed costs are already done and paid for. I should only pay you the $3 marginal cost for my food and labor inputs."

    Cuz that's what you're doing to ISPs.

    Listen, ISPs oligopolists are dicks. They're not easy to defend. But occasionally they're right.

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