In thinking about the brouhaha over AT&T's proposed
"sponsored data" plan for its wireless service, I was reminded of a
blog I wrote shortly after the oral argument in Verizon's appeal of the FCC's
net neutrality regulations. With a nod to James Carville, it was titled, "It's
the Consumer, Stupid!"
I explained there that, amidst all the back-and-forth about
net neutrality, it is easy to be seduced into focusing on the wrong questions –
for example, whether "edge providers" or broadband providers are more
adversely impacted by a particular business practice. The most important
questions should involve the impact of the business practice on consumers, not
the providers.
Well, welcome to "It's the Consumer, Stupid – Part
II" – courtesy of some of the reactions to AT&T's sponsored data
proposal. As you know by now, under AT&T's proposal, data charges on
AT&T wireless service resulting from eligible uses will be billed directly
to the sponsoring company, rather than to the AT&T subscriber. Thus, as
AT&T claims, the sponsored data plan operates in a fashion similar to the
long-familiar 1-800 numbers that allow telephone customers to call toll-free,
with the sponsor of the 800 number paying for the call.
First, let me make clear that I understand, and almost no
one seriously contends otherwise, that the FCC's net neutrality regulations, by
their terms, do not apply to AT&T's plan because the prohibitions don't
apply to wireless services. Nevertheless, this fact doesn't stop some, who
almost always reflexively oppose any business practice that can be made to "sound"
in net neutrality from suggesting that, in any event, the practice ought not be
allowed.
Second, I understand that sometimes it doesn't matter one whit
whether the FCC 's existing regulations actually do or do not prohibit a
proposed business practice, or whether the FCC actually does or does not
possess authority to prohibit the practice. By this I mean that often the objectors'
goal is simply to create enough of a stir – a brouhaha, as we say – so that the
company proposing the new service will withdraw the proposal to
"reconsider," "reevaluate," "recalibrate," or
whatever. It may take only a raised eyebrow or two from FCC officials or
members of Congress to lead to such a strategic back-off.
I have seen such back-offs under fire many times in the
past, and I'm sure I'll see more. I often wince when they occur, but I
understand the pressures that may be brought to bear.
In this instance, I hope AT&T holds fast for one main
reason: Consumers, on the whole, are likely to benefit if AT&T's plan goes
forward. Whether or not the plan benefits AT&T is not my concern, although
I assume AT&T anticipates its business will benefit or it wouldn't propose
the new offering. Too often "consumer advocates" adopt the posture that
anything that benefits the service provider's business must be detrimental to the
provider's consumers. In other words, they view the provider-customer
relationship through a "zero-sum game" lens. This, of course, is completely
wrong.
Let me now address the two principal objections raised in
one form or another to AT&T's proposal.
AT&T's plan puts it in the business of picking winners and losers
on the Internet.
AT&T says its plan is voluntary and non-exclusive, so it
is difficult to understand how AT&T is picking any winners and losers. What
some of the objectors seem to mean, instead, is that the very existence of the
plan means, ipso facto, there will be
winners and losers in the sense that some companies may not be able to afford
to establish a sponsored data plan. Perhaps they are even the proverbial
start-up still in the garage.
Depending on the business model employed by the content or
apps provider, the sponsored data plan will be more or less attractive. Some
companies certainly may benefit from such a business model more than others.
This is the way markets operate. Most importantly, though, consumers benefit
from the marketplace competition as companies innovate and invest in new
content and applications while seeking a competitive edge.
Even assuming for the sake of argument that AT&T's plan
were exclusive rather than non-exclusive, it still would be wrong to assume
AT&T would be in the position of picking winners and losers. This is
because the wireless marketplace is competitive, and, therefore, it is in the
interest of AT&T and its competitors to carry all the content and
applications that consumers find attractive. In other words, AT&T and its
competitors all want more usage of their network facilities. If a new start-up
content or application provider has a good business plan that includes
sponsored data – a proposal for a service likely to attract consumers – it will
be able to attract capital to fund participation in AT&T's plan.
AT&T's plan could ultimately harm consumers.
This claim has been made by several of the objectors, but,
for illustrative purposes, I'll take the statement issued by Rep. Anna Eshoo,
the ranking member of the House Subcommittee on Communications and Technology,
whom I respect. According to a report in the Hillicon
Valley blog, Rep. Eshoo said:
On its face, the ability
for consumers to access ‘toll-free’ content seems like long-awaited relief from
frustrating data caps. But embedded in programs of this type are serious
implications for fairness and competition in the mobile marketplace. …And we
must ask just how beneficial a program like this is to consumers who could
ultimately foot the bill for the added cost of doing business.
But Rep. Eshoo's suggestion is that, whatever the data-free plan's acknowledged short-term benefit to consumers, they "could ultimately foot the bill for the added cost of doing business." Presumably she means to suggest that the content and apps providers, ultimately, might pass on to consumers the fees they pay AT&T to participate in the sponsored data program. Depending on the business model devised by the content and apps providers, they may or may not charge consumers to access their products and services.
But here's the most fundamental point: There simply is no free lunch. Assuming that the government is not going to take over the private wireless networks, and pay the costs of maintaining and operating them – and I don't take Rep. Eshoo to be proposing this – it is just an economic fact that, ultimately, private networks, such as AT&T's, must be paid for one way or another by those who use them, whether by AT&T's subscribers, or by the content and apps providers who rely on AT&T's network for reaching their own users, or some combination of these segments.
Under AT&T's proposal, participating content and apps providers will share some of the costs of operating and expanding AT&T's wireless network. There is no reason for the government to dictate that the costs for network operation and facilities upgrades shouldn’t be paid for, at least in part, by the content and applications providers that are reliant on the network to reach their customers. It is at least possible, if not likely, that this cost-sharing mechanism will turn out to be, at least for some business models, a more economically efficient way to recover the costs of operating and expanding the service provider's networks, while expanding customer usage. And, in this context, economically efficient means less costly, on an overall basis, ultimately to the benefit of all consumers that use the network.
Put slightly differently, given the competition in the wireless broadband market – indeed, in the broadband marketplace at large – the costs of the FCC interfering with proposals like AT&T's are likely to outweigh the benefits. This is because the costs entail curtailing market experimentation that drives innovation in new products and investment in new facilities. And when that happens, especially in a dynamic marketplace, we're talking real consumer harm.
So, remember, in thinking about these issues: "It's the Consumer, Stupid!"
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