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AT&T and Time Warner's Merger Raises Zero-Rating Concerns

DEEPLINKS BLOG
November 2, 2016

AT&T and Time Warner's Merger Raises Zero-Rating Concerns

A Merged Entity Will Have Twice the Incentive to Act as an Internet Gatekeeper

On October 22, AT&T announced it had reached a deal to acquire Time Warner, setting in motion one of the largest vertical mergers in telecommunications history. Not surprisingly, Congress has begun raising concerns. In particular, Senator Ron Wyden (D-OR) has called on the Federal Communications Commission (FCC) to review it with an eye toward the potential for anti-competitive practices—such as carrier-directed, content-discriminatory zero-rating plans.

Zero-rating's effect on users

EFF doesn't oppose zero rating—that is, the practice of subsidizing mobile data for certain content or services—in all cases. For example, it seems plausible to have a user-driven zero rating model that does not conflict with the basic principles of network neutrality. But we are troubled by certain types of zero-rating that let the Internet Service Provider (ISP) act as an Internet gatekeeper, using free bandwidth to entice users to choose certain sites and services. For example, AT&T has already made the decision to zero-rate AT&T-owned television provider DirecTV, giving its own services a leg up against the competition.

Zero-rating certain content has a direct impact on consumer behavior by giving users a strong incentive to gravitate towards that content. After all, zero-rated content is free for subscribers, and helps them avoid paying overage fees on data caps. Indeed, the carrier industry association's own survey (PDF, page 8) notes that 84% of consumers look more favorably on zero-rated data and are more willing to consume zero-rated content.

Zero-rating can thereby turn ISPs from relatively neutral conduits into gatekeepers. That kind of power is one reason the FCC passed the Open Internet Order in the first place: to defend the user expectation of best-effort transmission of all data—regardless of the content, service, or parent company it is associated with—in response to consumer demand. It is worth noting that the FCC has not officially decided what is and is not a permissible zero-rating practice, but has reserved the power to review zero-rating on a case-by-case basis. To date, several noteworthy Internet companies are calling for action, as is the EFF, but none has been taken.

Double the gatekeepers, double the power

The merger between Time Warner's content and AT&T's distribution exacerbates the risks of zero-rating by creating a double incentive. The merged entity could have the power to both shape traffic and to influence where that traffic is directed. While the wireless industry continues to argue that zero-rating and data caps are necessary simply for congestion management (PDF, page 11), AT&T seems to contradict that argument by expressing an intent to do much more: launch a zero-rated, wireless competitor to cable television. In other words, video streaming—one of the most data-intensive and congestive applications out there—will be available for unlimited use so long as it is owned by AT&T. Such a service is not about traffic management, but the power to give preferential treatment to certain types of data over others—in this instance, privileging content owned by AT&T and Time Warner over competitors' content. That's a lot of power to put in the hands of the second-largest wireless company and second-largest television provider.

Given these risks, policymakers and regulators should take a close look at what issues the merged entity presents to an open Internet, from independent content creators and open platforms to major established players.

The FCC recently took action on broadband user privacy, and apparently foreclosed on one of AT&T's key goals of collecting cell phone web browser and application usage history to sell to advertisers. With the privacy rules in place, the FCC should proactively begin making its case-by-case determinations on zero-rating practices and lay down some specific markers should these vertical mergers become more common.

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