AT&T Is Terrified of California’s Proposed Net Neutrality Legislation

Riding a wave of merger mania, AT&T wants to ensure state and federal lawmakers are powerless to thwart its attempt to dominate the internet.

Having successfully lobbied Ajit Pai’s FCC to kill federal net neutrality rules, lobbyists for AT&T, Verizon, and Comcast have shifted their focus to the state level, where more than half the states in the union are now contemplating some form of net neutrality protections, either in the form of new laws or executive orders.

But ISP lobbyists are particularly worried about net neutrality efforts in California.

The state this week fused two separate proposals into one piece of legislation that goes notably further than even the FCC’s recently-discarded 2015 rules did. Combined, Senator Scott Wiener’s SB 822 and Senator Kevin de Leon’s SB 460 closely mirror the FCC’s discarded rules by banning anti-competitive throttling or unfair “paid prioritization” deals.

But California’s proposal goes notably further than the FCC’s rules in that it takes specific aim at “zero rating,” or the practice of letting an ISP’s content (or content from a deep-pocketed partner) bypass usage caps while still penalizing competing services. Comcast, for example, counts Netflix against the company’s broadband usage caps while exempting its own streaming services from the same restrictions. AT&T and Verizon were similarly blasted by the previous FCC for exempting their own mobile video offerings from caps and overage fees—while still penalizing competing services.

While ISPs have long tried to argue that usage caps are necessary for “fairness” or to help manage their networks, deeper analysis routinely shows that neither claim is true. Usage caps and overage fees are arbitrary constructs that let ISPs charge Americans even higher rates for what’s already some of the highest prices for bandwidth in the developed world.

Caps and overage fees not only provide ISPs a nifty way to raise rates, they’re useful as a weapon to make cord cutting more expensive by imposing additional fees on users who switch to alternative streaming services like Hulu, YouTube TV, or Sling TV.

AT&T has long tried to use usage caps and zero rating to give its own content a distinct advantage in the streaming video market. And while the previous FCC initially took a wait-and-see approach to the problem, it ultimately concluded that both AT&T and Verizon’s implementation of caps was being used anti-competitively to harm competitors. California’s proposed net neutrality law doesn’t ban zero rating outright. It allows carriers to zero rate entire classes of service from usage caps (like say, video or music), but bars ISPs from striking specific zero rating deals that exempt one company’s service over another. The goal: to ensure that no one company can buy an unfair advantage over another.

AT&T just spent $86 billion to acquire Time Warner (including CNN and HBO), and will likely zero rate much of this content in its bid for streaming supremacy. That’s why the company’s lobbyists have been scrambling to either kill or weaken the California proposal. AT&T’s efforts in California have included funding a nonprofit by the name of CALinnovates to lobby against net neutrality. The group has been circulating a misleading three-page study among California lawmakers claiming that practices like zero rating are an incredible boon to low-income and minority Californians. "Low-income and minority Californians enjoy disproportionately greater benefits from zero-rated data," the study proclaims. "Californians who rely exclusively on a smartphone to access the internet enjoy benefits as high as $30 a month per person from zero-rated data."

AT&T has long tried to claim that zero rating somehow aids the poor, often trying to conflate the anti-competitive gambit with ideas like “free shipping” or 1-800 phone calls. Consumers often buy into this argument, falsely convinced they’re getting something for free. But that again ignores that usage caps are arbitrary and unnecessary constructs, and that U.S. consumers already pay some of the highest prices among all developed nations for mobile bandwidth. AT&T’s real intent here has long been anti-competitive in nature, and usage caps, overage fees and zero rating tend to only harm the communities AT&T professes to care about. As Democrats try to make net neutrality an issue ahead of the midterm elections, net neutrality activists say AT&T is targeting California lawmakers like Communications and Conveyance Committee Chair Miguel Santiago, hoping he’ll weaken the provisions governing zero rating ahead of a Wednesday vote on the state proposal.

“Santiago has received $43,900 in funding from the telecom sector and AT&T is his #5 contributor over his Assembly career,” net neutrality activist group Fight For the Future argued in a Medium Post. “So it’s no surprise that he wants to gut SB 822 and add gaping loopholes that ISPs asked for. And he thinks no one will care.” Santiago’s waffling has even resulted in a stern talking to by Democratic Leader Nancy Pelosi, who sent a letter to Santiago warning him away from weakening the potential law.

“Given the immense media consolidation happening in front of our eyes, we cannot allow giant conglomerates to use their communications pipes to tilt internet users toward the content, including news, they control,” Pelosi argued. Allowing those companies to do so would severely harm the diversity of voices and viewpoints, including those of communities of color.”

California’s push for net neutrality is notably important in the wake of similar efforts in both Oregon and Washington State. With the entirety of the west coast under state-level protections, and countless other states following on their heels, compliance headaches could make it easier to respect net neutrality instead of being selectively anti-competitive on a state-by-state basis.

With the federal government acting as little more than a rubber stamp to AT&T’s plan to dominate the internet, states are finding themselves the last port of call for anything even vaguely resembling telecom and media monopoly accountability. Democrats are similarly being forced to cultivate a newfound appreciation for the importance of states’ rights. But AT&T’s lobbying influence on the state level is similarly monumental. AT&T and other ISPs have not only threatened to sue any states that dare stand up for American consumers, it has convinced 21 states to pass protectionist laws preventing communities from building their own broadband network alternatives in the hopes of fostering real broadband competition. And if AT&T can convince one of the most progressive states in the union to scuttle tough net neutrality laws, numerous other states are guaranteed to have an even harder time trying to hold the new, even bigger AT&T accountable in the streaming video wars to come.