FCC Takes Aim at Verizon's 'FreeBee' Data

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

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 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."

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 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 a 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." 

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 "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.

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.