FCC Chairman Tom Wheeler has some parting gifts for AT&T and Verizon: Letters doubling down on the FCC's suggestion that zero-rating data plans run afoul of the FCC's Open Internet rules.

RELATED: FCC Takes Aim at DirecTV Now

The FCC last month fired a warning shot at AT&T's free data services for mobile customers--video services, for example, that don't not count against a customer's data usage--saying the combination of DirecTV Now and AT&T Mobility sponsored data plans "appears to present significant anti-competitive effects."

RELATED: Verizon Launches ‘FreeBee Data’

AT&T had responded, explaining why that was not the case, but the FCC's Wireless Bureau was not persuaded, and also fired of a first letter to Verizon targeting its free data.

"We find that those responses fail to alleviate the serious concerns expressed in our November 9 letter regarding the potential anti-competitive impacts of s wholesale Sponsored Data program for zero-rated mobile video services," Jon Wilkins, the chief of the wireless Telecommunications Bureau, wrote in a letter to AT&T.

"I am writing to express concern about the potential impact of Verizon's "FreeBee Data 360" sponsored data program on competition for mobile video services," Wilkins wrote Verizon. "Based on public reports as well as information you have orally provided to us, the Wireless Telecommunications Bureau ("the Bureau") believes that the FreeBee Data 360 offering to edge providers unaffiliated with Verizon, combined with Verizon' s current practice of zero-rating its affiliated edge services for Verizon subscribers, has the potential to hinder competition and harm consumers. We request that you respond to address this concern by no later than December 15, 2016." He wanted a response by Dec. 15.

In the letter to AT&T, Wilkins did not stop at video.

"We are also concerned that the impacts of these practices, which could be reasonably expected to be extended to additional edge markets if permitted here, will go beyond video, potentially advantaging AT&T (or any other network owner employing similar practices) and its affiliates in a wide-range of usage-intensive services that rely on cloud-based solutions for businesses or consumers - such as hosted enterprise software or remote data storage - to the detriment of competing services not affiliated with an incumbent network operator," He wrote.

Wilkins said it was not a blanket criticism of the pricing of DirecTV Now, the online video service that launched this week, "nor its strategy for competing in the retail video market. Indeed, as an over-the-top (OTT) offering that is available over any Internet service provider's network - including those owned by video market incumbents such as cable operators - DIRECTV Now relies on the safeguards provided by the Open Internet Order's pro-competition rules. Nor do we question bundled retail offerings or vertical integration per se."

Then what was the problem?

"Our concern is that AT&T's Sponsored Data program - i.e., the terms and conditions on which AT&T makes its own network available to similarly situated unaffiliated providers denies unaffiliated third parties the same ability to compete over AT&T's network on reasonable terms,” he wrote.

“These are incredibly popular free services available to millions of customers," AT&T said in a statement. "Once again, we will provide the FCC with additional information on why the government should not take away a service that saves consumers money.”

"We will review and respond to the inquiry as requested," said Verizon spokesman Richard Young. "In the meantime, we remain quite confident that our practices are good for consumers, non-discriminatory and are consistent with current rules."

Senior Republican and possible FCC interim chair Ajit Pai, blasted what he called a "yet another broadside against free data for consumers."

Pai reminded Wheeler of Congress' call to ramp down regulatory initiatives during the transition to a Republican Administration, suggesting the Wireless Bureau letter represented NOT doing that.

"This end-run around Congress’s clear instruction is sad—and pointless," he said. "[A]ny unilateral action taken by the Wireless Telecommunications Bureau at the Chairman’s direction in the next 49 days can quickly be undone by that same bureau after January 20, 2017."

Soon-to-be-in-the-majority Republican Commisssioner Michael O'Rielly was equally critical.

“In light of the multiple directives we have received from Congress to avoid directing attention and resources to complex or controversial matters, the staff of the Wireless Telecommunications Bureau is inappropriately pressing forward and escalating its investigation of certain providers’ zero-rated video services," said O'Rielly. "It would be difficult to come up with a better example of a complex, controversial policy at the current Commission than this attempt to intimidate providers in order to shut down popular offerings to consumers. It just reaffirms my objection to this entire investigation process and the use of delegated authority in general.

Verizon and AT&T/DirecTV are pushing forward with more zero-rated fare on the mobile front as the FCC continues to mull how such policies should (or shouldn’t) apply to its network neutrality rules.

RELATED: Pro Zero-Rating Comments Flood FCC (subscription required)

Verizon Wireless, for example, is now zero-rating live local and primetime NFL games delivered on its mobile network through its exclusive with the league. Games streamed on Verizon’s mobile network don’t count toward the subscriber’s monthly data allowance, with the caveat that they are postpay subs and watching on the carrier’s LTE network.

Verizon’s already been active with zero-rated policies with a FreeBee Data, which focuses on sponsored content.  

AT&T and DirecTV, meanwhile, launched a new app last week that lets users view live and recorded content without eating through their mobile data caps via a “Data Free TV” feature. Of course, that only applies to pay TV subs who get AT&T’s mobile service.

Among other enhancements, the DirecTV app now offers up to 315 live TV channels via WiFi or mobile and access to recorded content on the home DVR and an option to download most shows and movies recorded to the sub’s local DVR.  The catch for those features is that that the customer must be on a “Select” subscription or above and have the Genie HD DVR 44 model and above.

And here’s a video about it:

About 81%  of all U.S. smartphone users now use those gadgets to stream video, The NPD Group found in its new Connected Intelligence Smartphone and Tablet Usage Report, which based its findings via an opt-in panel.

As might be expected, usage is driven by users who are 25 years and younger who spend twice as much time watching on YouTube and Netflix mobile apps versus those who are older than 25 (see chart).

NPD said the younger set in the study consumes, on average, 6.2 gigabytes of data (cellular and WiFi) for video streaming purposes each month. By comparison, the older group averages 4.9 GB.

And while most of that video streaming happens over WiFi, NPD  Smartmeter, an opt-in metering app that tracks live smartphone and tablet usage, found that the average U.S. smartphone user consumes nearly 3 GB of cellular data per month, with video streaming as the top app driving that consumption.

That trend bodes well for new zero-rated video services from companies such as T-Mobile (Binge On) and Verizon (FreeBee Data). 

“Users are spending more time watching videos on their smartphones than ever before, as the adoption of smartphones that boast larger displays increases,” Brad Akyuz, NPD Connected Intelligence Mobility practice research director, said in a statement. “This mobile streaming behavior is further bolstered by the new offerings of wireless operators, such as T-Mobile’s Binge On and Verizon Wireless’ go90, which run on free sponsored data.” 

Verizon is giving Go90, its new “mobile-first” OTT service some time to catch on and evolve in the coming years, but the company acknowledges that it would like to see the offering attract more eyeballs.

Go90 offers a new strategic direction that’s pleasing for advertisers, “but we have to get the viewership up,” Fran Shammo, Verizon’s EVP and CFO, said Tuesday at the Morgan  Stanley Technology, Media and Telecom Conference in San Francisco.

He said Go90’s ability target younger audiences is worth more than a “blanket TV ad” that spans multiple segments to some advertisers that are trying to connect with millennials.

 “This was not something launched last year that would take off immediately like a new smartphone,” Shammo said of Go90, noting that the service has seen some traction around its NBA coverage, music offerings and content from partners such as AwesomenessTV. “This is going to be a progression and evolution for us over the next two to three years.

“We’ll continue to evolve this product through 2016,” he said.

And it will continue to monetize Go90 via advertising models, including FreeBee Data, a sponsored data service that Verizon’s been trialing, but will launch commercially on March 5.

“Advertisers are excited about the prospects around Go90,” he said.

Shammo was also asked to discuss Custom TV, FiOS TV’s slimmed-down offering that was  recently reshaped and split into two packages, including one that now includes ESPN.

Shammo said the take rate under the revised Custom TV offerings are at about 40%, noting that FiOS TV is also seeing some uptake of its add-on packages.  

Looking ahead, the exec sees “more conflict between content and linear TV providers…I think it’s just the nature of what’s going to happen in this ecosystem.” But he was likewise hopeful that content distribution deals for Go90 will give Verizon more leverage in its carriage negotiations for FiOS TV.

Shammo also said Verizon was interested, but not yet ready to commit, to making a move for some Yahoo assets that are on the block.

“We’ll look at every single opportunity, whether it's an opportunity to divest some of our portfolio or whether it’s an opportunity to acquire that we believe will increase our shareholder value,” he said. “Yahoo falls into that bucket.”

He said it’s premature to commit to anything beyond that “because I don’t think anybody knows what’s under the hood yet…That’s just an opportunity that we’ll look at.” 

Verizon has begun to zero-rate streaming of go90 content for postpaid customers when they are connected to the mobile carrier’s LTE network.

That’s according to a new customer agreement distributed this week by Verizon, caught first by DSL Reports.

“Beginning on or about February 4, 2016, if you are a Verizon Wireless post-paid customer and you download the current version of go90 (release 1.4), you can watch any video on go90 without incurring Verizon Wireless data usage charges so long as you are connected to LTE," the agreement states. "Other activity that does not involve watching videos, such as downloading go90 from an app store, browsing or searching for shows, posting comments, sharing clips and viewing settings will incur data usage charges.”

Verizon, which launched the ad-supported go90 OTT service in October 2015, has already been experimenting with zero-rated policies that have gotten the attention of network neutrality advocates. Last month, it began to test FreeBee Data, a sponsored service that is exempt from mobile data-usage policies.

The current go90 agreement also makes note that Verizon may also offer  “promotions and/or plans that allow you to watch some or all go90 Content without incurring data use charges” from Verizon and other wireless providers.

Update: Verizon told Re/code that the new policy for go90 does “take advantage of Verizon’s FreeBeeData 360 service, which allows them to pay for customer’s data usage associated with watching videos on the Go90 app….“FreeBee Data 360 is an open, non-exclusive service available to other content providers on a non-discriminatory basis. Any interested content provider can use FreeBee Data 360 to expand their audiences by giving consumers the opportunity to enjoy their content without incurring data charges.”

Those data usage costs, the carrier added, “falls to Go90 and we wanted to give our users an opportunity to watch everything in the app without it counting against their data plans.”

Verizon's FreeBee approach followed the launch of “Binge On” from T-Mobile, which uses a proprietary, bandwidth-efficient encoding system that delivers mobile video in 480p format (DVD quality), and zero-rates streams from several content partners, including Netflix, HBO, Starz, Sling TV, and Hulu. AT&T, meanwhile, has dropped hints that it is evaluating sponsored-data services.

Verizon gave the FCC the heads up about FreeBee Data prior to the launch of the sponsored-data offering. The FCC, which will take a case-by-case approach on new sponsored-data and zero-rated policies and services, noted that it "will continue to communicate with the company [Verizon, in this instance] on this issue.”

 In the meantime, the FCC is on a fact-finding mission for services such as Comcast’s "Stream" IPTV service, an in-home, managed IP-based service tailored for cord-cutters that’s not delivered “over-the-top” and, therefore, not tied into the MSO’s usage-based broadband data trials, as well as T-Mobile’s Binge On service.

T-Mobile presented new stats indicating that Binge On is a hit with customers while also announcing a handful of new partners have joined the zero-rated service: Amazon Video, Fox News, Univision NOW (Univision’s recently launched subscription OTT service), and WWE Network.

Binge On, an optional service launched about three months ago, exempts streams from partnered OTT services from T-Mobile’s data-usage plans, and uses a proprietary, bandwidth-efficient encoding scheme that delivers video at resolutions at up to 480p. More than 40 partners are involved, including Netflix, HBO Now, Hulu, Showtime, Starz and Sling TV.

As usage goes, T-Mobile said customers on qualified data plans are watching more than twice the video than before via Binge On. The company added that one unnamed partner has seen a 79% increase in daily views since Binge On was introduced, and that its customers have streamed 35 petabytes of data for “free” so far, claiming that it’s equivalent to more than 109 million episodes of Game of Thrones (at DVD quality).

T-Mobile also introduced new “short codes” to change settings and to toggle the Binge On  service on or off (#BOF# (#263#) to turn it off,  and #BON# (#266#) to turn on Binge On).

Among other U.S. wireless carriers, Verizon Communications has since introduced FreeBee Data, a sponsored-data service, and AT&T has hinted that it’s looking into similar, sponsored-data offers.

Zero-rated and sponsored data offerings have been criticized by network neutrality advocates and by Google over claims that Binge On is “throttling” YouTube streams, but T-Mobile has been adamant that its approach isn’t throttling and is well within the FCC’s guidelines.

RELATED:Netflix Eclipses 75M Subs Worldwide | Netflix’s Sarandos Returns Landgraf’s Fire

Netflix CEO Reed Hastings volunteered on the OTT giant’s Q4 earnings interview Tuesday (Jan. 19) that Charter Communications’s pending acquisition of Time Warner Cable would represent a “tremendous positive” for the over-the-top video industry.

That of course was in reference in part to Charter’s current settlement-free peering policy, and its pledge to extend that policy to the systems it’s poised to acquire from Time Warner Cable and Bright House Networks. Netflix, which has already offered support for the deals, notably operates in a paid peering model with TWC, with Bright House benefiting from the TWC-Netflix agreement. Netflix also has paid peering deals with Comcast, Verizon Communications and AT&T. 

Charter's proposals represent a “huge step forward for U.S. policy [with respect] to OTT,” Hastings said.

Hastings was also asked if Netflix plans to partner up with FreeBee Data, Verizon’s new “sponsored” mobile data service that the carrier is testing, and follow the path the OTT provider has taken with T-Mobile’s Binge On service.

“We don’t know enough about FreeBee,” Hastings said, but did have some praise for Binge On, when later asked how the policy backing that service differs from some of the usage-based policies being tested by ISPs such as Comcast.

 “It’s voluntary on the customer,” Hastings said of Binge On. “It’s an open, no-charge program…We hope those kinds of programs expand.”

Netflix is seeing a “great reception among our users” to Binge On, he said earlier, noting that the quality of Binge On streams (limited to 480p) is “very, very good” when viewed on a four-to-five-inch smartphone screen. 

On the international front, Hastings said Netflix will be patient with respect to China, a market that’s currently absent from Netflix’s launch list and presents challenges for Netflix and other content providers with respect to censorship and other restrictions.

“There are issues conforming to those local standards,” Hastings said, warning that discussions about Netflix’s possible entry into China could take many years “or it could be faster than that.”

“We should be very patient,” he said of the Chinese market. “We’re in no hurry.”

Netflix also addressed its crackdown on VPN and proxy users that enable viewers to access geo-restricted portions of Netflix’s catalog.

Hastings said it’s “perfectly reasonable” for content owners to want Netflix to enlist new countermeasures.

While Netflix’s original content has global distribution rights, the company is endeavoring to make all of its content accessible in all markets, content chief Ted Sarandos said, calling piracy and geo-filtering “distance cousins” because one side (piracy) hacks in not to pay, while VPN/proxy users hack to pay, but try to gain access to a library they’re not entitled to.