FCC Raises Fresh Concerns Over 'Zero-Rating' by AT&T, Verizon - Wall Street Journal
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Federal regulators raised new concerns about AT&T Inc.’s practice of excluding its new DirecTV Now streaming service from data charges and, for the first time, lobbed similar questions at Verizon Communications Inc.
In a pair of letters sent Thursday, the Federal Communications Commission warned that so called zero-rating, which makes the data used by certain video services free for the carriers’ wireless customers, could harm competition and consumers.
The agency argues the practice could deter consumers from accessing mobile-video services not affiliated with the carriers, such as those from Netflix Inc. or Hulu, which is co-owned by Walt Disney Co., Comcast Corp., 21st Century Fox and Time Warner Inc.
21st Century Fox and News Corp, parent company of The Wall Street Journal, share common ownership.
Both AT&T and Verizon responded Friday that the practice complies with existing rules and benefits consumers.
“We will provide the FCC with additional information on why the government should not take away a service that saves consumers money,” AT&T said Friday.
The FCC’s letters come on the heels of the launch of DirecTV Now this week and after Republican congressional leaders last month asked the agency to stop taking controversial regulatory actions until the new presidential administration is on board.
The FCC first raised its concerns with AT&T last month, the day after the presidential election. AT&T responded with a detailed defense that hasn’t satisfied the regulator.
Republican FCC commissioner Ajit Pai criticized the move in a statement Friday, highlighting the Congress’s call to avoid controversial decisions.
“This end-run around Congress’s clear instruction is sad—and pointless,” he said, noting that any unilateral action “can quickly be undone” after the Presidential inauguration on Jan. 20.
Jon Wilkins, the head of the FCC’s wireless division, in Thursday’s letter wrote that the agency has “reached the preliminary conclusion that these practices inhibit competition, harm consumers, and interfere with the ‘virtuous cycle’ needed to assure the continuing benefits of the open internet.”
The FCC’s letter to Verizon notes that the carrier’s actions have “the potential to hinder competition and harm consumers.” Verizon excludes data charges to its wireless customers for its National Football League games or its go90 mobile-video app.
“We remain quite confident that our practices are good for consumers, non-discriminatory and are consistent with current rules,” Verizon said Friday.
The agency requested both companies respond by Dec. 15, including a list of detailed questions for AT&T.
AT&T says other video providers can also pay to cover data costs for their customers at the same rates as its DirecTV subsidiary. Verizon offers a similar program.
The FCC estimates that an outside video provider would have to pay AT&T $16 a month for each customer who used 10 minutes of streaming video a day, rising to $47 a month for a customer using 30 minutes a day.
“That would make it very difficult, if not infeasible, to offer a competitively priced service,” the letter states.
The Dallas telecom firm, which agreed to buy Time Warner Inc. for $85.4 billion in October, began zero-rating its DirecTV video app in September as well as its new DirecTV Now over-the-top service.
—Ryan Knutson contributed to this article.
Write to Thomas Gryta at thomas.gryta@wsj.com
Corrections & Amplifications:
Hulu is co-owned by Walt Disney Co., Comcast Corp., 21st Century Fox and Time Warner Inc. An earlier version of this article incorrectly stated that Disney and 21st Century Fox were sole co-owners. (Dec. 2, 2016)
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