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FCC Says AT&T’s Zero-Rating May Violate Net Neutrality, But Punts on Action

It’s too late for the FCC to crack down on AT&T and Verizon’s ‘zero-rating’ plans.

Federal Communications Commission officials have concluded that a controversial AT&T wireless plan likely violates US open internet rules, but the agency has run out of time to crack down on the practice before Republicans take control of the FCC next week.

The FCC on Wednesday released its long-awaited policy review of "zero-rating," which refers to a variety of practices that broadband companies use to exempt certain internet services from monthly data caps, effectively favoring those services by providing consumers with an economic incentive to use them instead of rival offerings.


FCC staffers concluded that AT&T's sponsored data plan, which doesn't count the company's DirecTV video content against data caps, likely violates the General Conduct Rule contained in the FCC's policy safeguarding net neutrality, the principle that all internet content should be equally accessible to consumers. That rule gives the FCC wide latitude to crack down on anti-competitive broadband practices.

"We have serious concerns that AT&T Mobility's Sponsored Data program presents competitive problems," officials from the FCC's Wireless Telecommunications Bureau wrote. "Based on the information gathered to date, we believe there is a substantial possibility that some of AT&T's practices may violate the General Conduct Rule."

Many open internet advocates view zero-rating, which has emerged as the latest battlefront in the decade-long war over net neutrality, as an attempt to skirt the FCC's rules prohibiting broadband companies like AT&T and Verizon from favoring their own services or discriminating against rivals.

"Zero-rating plans like those offered by AT&T and Verizon are a scheme to manipulate consumers."

"Despite clever branding gimmicks, so called 'free data' or zero-rating plans like those offered by AT&T and Verizon are a scheme to manipulate consumers and transfer money from their pockets to a company's bottom line," Sen. Ron Wyden, the Oregon Democrat, said in a statement. "This report lays the framework for ensuring zero-rating plans don't betray net neutrality and is a step in the right direction towards maintaining a free and open internet."


Over the last year, the FCC has conducted an extensive review of various zero-rating practices, including plans offered by AT&T, Verizon, and T-Mobile. But by taking so much time to finish its inquiry, the FCC has effectively run out the clock on itself. With the FCC's anti-net neutrality Republican members poised to take control of the agency next week, it's virtually certain that no enforcement action will be forthcoming.

As a result, consumers can expect wireless zero-rating plans to proliferate over the next year and beyond. That doesn't mean that the FCC's policy review was a waste of time or a meaningless exercise, according to Harold Feld, Senior Vice President at DC-based digital rights group Public Knowledge.

In an interview with Motherboard, Feld expressed frustration that the FCC under Chairman Tom Wheeler didn't act with greater speed to address zero-rating. But the agency's review is still important, he said, because it puts the two Republican FCC commissioners, Ajit Pai and Mike O'Rielly, in the awkward position of having to roll back a pro-consumer policy opposed by wireless industry lobbyists. And that could be politically painful.

"I hope that Pai and O'Rielly take a hint from the failed Republican effort to gut the Office of Congressional Ethics," said Feld. "There are a lot of voters out there who don't want the first actions of this new administration to be doing favors for big companies. When they say they want to drain the swamp, that doesn't mean feed the alligators."


Perhaps sensing that Wheeler has laid a trap for him, Pai, who is widely expected to be named acting FCC chairman after President-elect Trump is sworn-in on Jan. 20, lashed out at the agency's zero-rating review, and its conclusion that AT&T is likely violating net neutrality.

"This report, which I only saw after the FCC released the document, does not reflect the views of the majority of Commissioners," Pai said in a statement. "Fortunately, I am confident that this latest regulatory spasm will not have any impact on the Commission's policy-making or enforcement activities following next week's inauguration."

In addition to concluding that AT&T's program likely violates net neutrality, the FCC also expressed concern about Verizon's FreeBee data plan, which likewise offers zero-rated content to wireless customers. T-Mobile's Binge On plan, by contrast, was given a pass by the FCC, because it "appears not to discriminate against or disadvantage (much less unreasonably discriminate or unreasonably disadvantage) any edge provider or end user."

Broadband giants like AT&T and Verizon say that zero-rating promotes competition and benefits consumers by allowing them to use in-house or otherwise favored services without exceeding data caps, thereby saving money.

In a statement, Joan Marsh, AT&T senior vice president for regulatory affairs, said that it "remains unclear why the Wireless Bureau continues to question the value of giving consumers the ability to watch video without incurring any data charges."

"This practice, which has been embraced by AT&T and other broadband providers, has enabled millions of consumers to enjoy the latest popular content and services—for free," Marsh added. "We hope the government continues to support a competitive marketplace that lowers costs and increases choice for consumers."

With Republicans opposed to the FCC's net neutrality policy poised to assume control of the agency, it's virtually certain that AT&T and other wireless companies will be able to continue offering zero-rated plans for the foreseeable future, without interference from federal regulators.