At CES this year, AT&T made an announcement that is designed to make things easier on your wallet. The single biggest cost in any cellular contract these days is data, and AT&T's new Sponsored Data is being touted as a way to take some of the load off of your data plan and transfer that burden to person whose data you're downloading.
It's called Sponsored Data, and it's designed to break the internet.
Your data, their data, all data
The basic form for the vast majority of internet delivery systems is this: you pay for the traffic that happens between your device and the web. Simplistically speaking, if I download a movie from iTunes, Apple pays for the bandwidth it takes to upload that movie from their servers to their internet service provider's server. It's shuttled through a network of servers that form the backbone of the internet until it reaches my ISP, and the I pay for the download of that movie from my ISP's server to my device.
That's a simplified explanation, yes, but that's how it works. It works that way with your wired connection at home or the office and it works that way with your cellphone. Until now.
Carriers like AT&T and Verizon have long publicly alluded to their wishes to move beyond simply serving as just the courier of your bits and bytes and to take a more active role in managing that. The most sinister of these incarnations has carriers charging providers for priority access to their network — Netflix could pay for higher-speed deliveries to your device, for example.
This flies in the face of the principle of net neutrality. It's a principle in name only, as very few ISPs or carriers have signaled their support for net neutrality — in which all traffic is treated equally, regardless of source or destination.
Sponsored Data is designed to massively and rapidly undermine net neutrality principles
AT&T's Sponsored Data is designed to massively and rapidly undermine such principles, in a way that they'll never be able to undo. They've already signed on three relatively low-level sponsors: insurance provider United Health Group, mobile advertiser Aquto who plans to use the data they're paying for to distribute "long-format product infomercials" (greaaaaat), and business app provider Kony Solutions. They're starting small with these sponsors.
Or at least "sponsors" is what AT&T likes to call them. It makes the scheme sound less like a scheme and more like some charitable action. In reality they're "subsidizers."
In the past the carriers explained their desire to move towards a provider-paid model as a reason to help with the load their networks were under. This argument never held much water, as they were always turning a profit off the backs of their paying contract customers. They've rarely been hurting for cash, and today with expansive LTE deployments it's rare that a network has buckled under the load.
AT&T and Verizon have become more transparent about their desire to implement provider-pay plans: it's all a revenue play. I can't blame them for that — the carriers are corporations, and corporations exist to make money. Generally a corporation that would be willing to pay for sponsored data is a corporation that could afford to pay, and can afford to pay in large quantities. AT&T would love to have those dollars. The three launch subsidizers had individually-negotiated contracts with AT&T with what is stated to have been different rates for each. What those rates are, AT&T was understandably not willing to disclose, but it's safe to imagine that they've paid a tidy sum for the privilege.
It's safe to say that Verizon will follow suit; Sprint and T-Mobile will feel the pressure too
It's also safe to say that Verizon is going to follow with their own similar plan very soon. That's usually how it goes with those two. Even with their unlimited plans Sprint and T-Mobile will feel the pressure — paying for unlimited data is nice, but having unlimited data that's being subsidized elsewhere is even easier on the wallet.
That pressure will come from a simple reason: if customers can get away with paying for less data on one carrier for the same downloads than they would on another carrier, they're more likely to opt for the cheaper one (after narrowing down their choices based on coverage, of course). Cheaper service attached to a recognizable name brand
The short-lived war that will kick off between the carriers will be nothing compared to the rush that the content providers will feel. Let's take Netflix as another example — if they sign on to Sponsored Data, meaning that customers will be able to stream as many movies and TV shows as they want from the service without worrying about their data overages — it's all but assured that their competitors will follow suit. Amazon, Apple, Hulu, CinemaNow, and everybody else will be sure to follow them down the path, lest consumers make their subscription choices based on who will or won't impact their data plan.
AT&T's been very smart about it. Instead of opting for a speed-based subsidization that would surely irritate customers — when your streams are jittering you're sure to first blame the carrier, not the phone or Netflix. It also puts a huge onus on the content providers to sign up. Savvy customers will know and use the services that won't impact their data plan, while it's certain that through the magic of advertising big providers will make a point of loudly declaring their status as Sponsored Data partners.
Pay to Play
Sponsored Data also has great potential to hamper smaller players that don't have the financial means to negotiate a rate with AT&T, let alone pay for that rate. The internet has enormous economic potential right now, and will only become more so in the years to come. Today businesses big and small launch on the internet. They can't necessarily afford advertising, let alone paying for not just their internet access but the internet access of their customers.
Small players will face issues convincing customers to use the smaller allotment of data that they are paying for on their service. It creates a barrier of entry for new data-hungry internet services that are oriented towards mobile users. The beauty of the internet is that any service can explode, that all players stand on a level playing field. Take Instagram, for example. They've likely transferred hundreds of terabytes of data to and from users. Let's say AT&T gave them a sweetheart deal of 50% off — they'd still be looking at thousands of dollars per terabyte.
AT&T comes out as the big winner here. And mostly it's because we Americans are cheapskates. The vast majority of people don't grasp the costs that come with a web-based operation. They don't have any concept that they can relate to for the costs of web hosting and bandwidth. Then again, most don't work the financial side of any business.
What we care about is how much something will cost us here and now. It's why we have subsidized smartphones, wherein a $600 smartphone only costs us $200 or less upfront. We tend not to calculate the long-term costs of anything we do (I could go on another thousand-word diatribe about that too, but that's for another time), and our cellular carrier know and embrace that fact.
When we're told that we'll be charged less for data on AT&T, we'll be happy to pay less.
So when we're told that we'll be charged for less data on AT&T, we'll be happy to pay less. We don't think about the consequences of turning the level playing field of the internet into a wall that requires stacks of money to surmount. We don't think about how patently bizarre this arrangement is in comparison to everything else we do — Target doesn't pay for my gas when I drive to their store.
We don't think about how these costs will in the end be pushed back to us anyway. But it won't be so clear as before, where we paid for an allotment of data and got data in return. Now instead of paying for data we'll see that cost rolled into that of the services we access with said data. That might mean some services will charge more, but, again, we're cheapskates and have repeatedly demonstrated a preference for free services, or at least services that hook us with a free beginning. So we'll be badgered with even more ads and more in-app purchases. There we are again with that not looking at the long-term costs.
And AT&T will never be able to walk this back. Once providers begin to sign on and customers get used the upfront savings on their data plan, there'll be no way to undo the damage. We don't like paying more for things than we had to in the past, even if the costs have changed. Once data plan charges start dropping thanks to Sponsored Data, customers won't react kindly to services that opt to stop paying for their data, or to a carrier undoing the Sponsored Data scheme.
AT&T's made good on their threats to gain more revenue by offering priority access to those internet services that are willing to pay, and in doing so they're threatening to forever alter the landscape of the internet.
This is a bad thing. A very bad thing.