AT&T has announced a program that has put many of us on edge – “Sponsored Data.” As an example, I may have a 500 MB cap on my monthly AT&T plan, but Facebook could pay AT&T so that its content does not count against my cap. Both Free Press and Public Knowledge have taken strong stands against the program, arguing that the FCC should not allow it. And the L.A. Times explains that it won’t save consumers any money.
But those who defend the program argue that it is nothing more than a modern day 1-800 number, where the other party pays for the call. I find the argument unpersuasive.
For decades, 800 numbers were a fraction of calls made. Most phone calls have been local in nature, so even if 800 numbers were a substantial amount of long distance calls, it didn’t really impact how we used our phones. By contrast, here AT&T will be targeting the most common applications on the Internet, further centralizing power among those with deep pockets to build a moat around their services and hamper innovation.
Additionally, we had unlimited local calling in combination with tolled long distance. If all calls were tolled individually, the 800 number would be a more appropriate comparison. All data counts against the monthly cap except for companies that pay to exempt their data. So if you have a choice between two video streaming services, which would you pick? The one that runs up your AT&T bill more or the one that doesn’t?
Finally, with this “pay to play” program, the big wireless carriers have a strong incentive to keep data caps low because if companies like Facebook, Google, and others are willing to pick up the tab.
The whole approach may harm innovation in ways that were spelled out quite well on AVC:
Entrepreneur: I plan to launch a better streaming music service. It leverages the data on what you and your friends currently listen to, combines that with the schedule of new music launches and acts that are touring in your city in the coming months and creates playlists of music that you should be listening to in order to find new acts to listen to and go see live.
VC: Well since Spotify, Beats, and Apple have paid all the telcos so that their services are free on the mobile networks, we are concerned that new music services like yours will have a hard time getting new users to use them because the data plan is so expensive. We like you and the idea very much, but we are going to have to pass.
This isn’t the make-believe world of Chicago economists. It is a world where making it big means finding investors – and investors rarely want to go after massive corporations with moats around their products. This is the same reason investors rarely see any prospect of making a quick buck by competing against Comcast.