AT&T Inc.’s practice of exempting its streaming video services from data-usage caps is rankling competitors and shaping up as a major issue for regulators set to weigh the telecom giant’s proposed $85.4 billion acquisition of Time Warner Inc.
When AT&T rolls out its $35-a-month DirecTV Now online TV service this month, its wireless subscribers will be able to stream as much as they want without it counting toward their monthly data caps. But if the same customers binge on outside services like Netflix or Hulu, those bits will add up—potentially leading to surcharges.
Streaming services like Netflix, Hulu, Sling TV, Major League Baseball spinoff BAMTech, as well as media companies like 21st Century Fox, are likely to press regulators to scrutinize the practice—known as “zero rating”—in their review of the AT&T-Time Warner deal, people familiar with the matter said. TV networks that have streaming apps, like CBS and ESPN, also may have a stake in the matter. (21st Century Fox and Wall Street Journal owner News Corp share common ownership.)
Several companies are likely to argue that AT&T’s DirecTV Now approach is anticompetitive, and will push for conditions on the merger, the people say.
Some Federal Communications Commission staffers already view AT&T’s DirecTV Now exemption as an example of improper zero-rating, people familiar with the situation said, because it disadvantages AT&T’s streaming rivals.
The agency is considering how to address zero-rating and whether to raise it as a merger issue, the people said. Other options the agency is weighing include industrywide guidelines on zero-rating.
AT&T says zero-rating promotes competition. It says it offers any company that wants to be zero-rated the same payment terms available to its DirecTV subsidiary. But critics argue that the in-house payments made by DirecTV don't require any net outlays by the parent company, and so can’t be compared to AT&T’s rivals paying for the same privilege.
FCC spokeswoman Shannon Gilson said: “Conversations to help commission staff understand new offerings are ongoing.”
AT&T officials also say zero-rating benefits consumers, a view shared by some groups representing minority and low-income communities. The practice helps streaming services and traditional TV providers “compete nationwide with cable TV’s bundle of TV and broadband,” said Bob Quinn, AT&T’s senior executive vice president for external and legislative affairs.
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