Tuesday, January 7, 2014

Thoughts on AT&T's "Toll Free" Data Delivery Service


            AT&T wireless has announced a campaign offering content providers the opportunity to pay for access to end users so that the downloading does not debit customers’ data plans.  Some think this constitutes double or triple dipping, because AT&T already receives compensation from end user broadband subscriptions and ISPs with which the last mile provider has a peering or transit agreement.

            What’s “fair” and “unfair” in this discussion highlights the complexity when a transaction combines content and conduit.  Efforts to separate the two and price them out can raise fairness concerns.

            Consider a transaction where the separation occurs more readily: paying for an item, e.g., book content from Amazon, and paying for shipping, e.g., postal delivery of a hard copy book, or download from Amazon to an e-reader.  Vendors often bundle “free shipping.”  For its part Amazon wants customers to use “free” wi-fi for the download, but the company does pay for wireless carrier delivery when necessary to cellular equipped e-readers.

            A content distributor, like Netflix, wants to avoid having to pay the U.S. Postal Service for physical delivery of DVDs and similarly the company wants to avoid having to pay last mile retail ISPs. For Netflix Internet delivery can save the company money, because end user retail Internet access subscriptions can include the book delivery within the “free delivery” monthly data allotment.  Bear in mind that until now Netflix consumers didn’t have to think about downloading costs thanks to unmetered data delivery.

            With monthly data caps, the delivery aspect becomes more visible and potentially costly to both the content provider and the consumer.  Cost recover gets murky, because even before companies like AT&T want to hit up Netflix for “toll free” downloading there already are two sources for offsetting carrier download costs.

            Offering Netflix the opportunity for not causing a downloading debit adds a potential third revenue stream. Is this an extension of the double-market economic construct like that envisioned by Chairman Wheeler?  Bear in mind that even now Internet compensation arrangements are negotiated between directly interconnecting parties that barter access or secure payment.

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