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(Updated with additional analysis.)
AT&T’s decision to block Apple’s (AAPL) video-calling program on its cellular network for certain customers has raised the ire of consumers and public-interest groups, and it may even draw the attention of the Federal Communications Commission. And after the wireless carrier posted its rationale on Wednesday on its decision to limit video over FaceTime to customers who have signed up for its Mobile Shared Data plan, I see two reasons the carrier has picked this fight.
The first is to push more consumers over to the Mobile Shared Data plan, and the second is to establish a precedent that will put its Wi-Fi network on the same legal footing as its cellular one, especially when it comes to network neutrality. Success in the first effort will help AT&T (T) in the near term as it drives people off their grandfathered unlimited plans and tiered plans, while success in the second will give AT&T more wiggle room as it fights the FCC and consumer advocates over network neutrality.
LTE networks were built for apps just like FaceTime. Every carrier has shown off advertisements with attractive people using video calling of some sort as a way to justify the upgrade to LTE. AT&T even once launched a now-defunct video-sharing service back in 2008 over an even less robust HSPA network, so claims from a post on Wednesday by AT&T’s Bob Quinn that defend AT&T’s stance by saying FaceTime is going to overwhelm the network is kind of like inviting your friends over for a brunch buffet and then only letting them eat the grapefruit.
Another problem is that absent real transparency over how congested its network really is, the FCC and consumers have no way of knowing if AT&T is using network management as a screen to implement network limits designed to push people off its unlimited and tiered plans and into the shared data plans.
And that is likely what AT&T is actually doing. It learned from Verizon’s mistakes of forcing consumers onto a shared data plan, but it shares the same goal as its rival in getting customers to switch. As revenue from voice and texting decrease, these shared plans lock in some of the revenue from those services in the form of fixed fees for devices, keeping the average revenue per user from going down. Jan Dawson, an analyst at Ovum, had this to say in an e-mail regarding these advantages:
“Both carriers are using it as a carrot to get people to pay a fixed amount for unlimited texts and voice, while getting them to pay a variable amount for data. Data usage is increasing, so they can expect people to pay a greater amount over time for data under a variable plan (hence getting them off unlimited data that they may have been grandfathered into on those two carriers). Voice and texting usage, on the other hand, are decreasing, so revenue would normally decrease as people cut the size of their bucket for voice and data. But by locking customers into unlimited voice and unlimited data, they prevent that reduction in revenue from happening.”
The motivation behind pushing customers to shared plans seems obvious. But do AT&T’s FaceTime rules violate network-neutrality rules, as public-interest groups say? Quinn says no in his blog post, first because AT&T is being transparent and second because FaceTime is somehow preloaded on the device. But the discussion about preloading is a red herring. What AT&T is really arguing is that because it allows FaceTime on its Wi-Fi network (and other video-chat apps), it’s not blocking a potentially competing app.
Quinn writes (emphasis mine):
“To date, all of the preloaded video chat applications on the phones we sell, including FaceTime, have been limited to Wi-Fi. With the introduction of iOS6, we will extend the availability of the preloaded FaceTime to our mobile broadband network for our Mobile Share data plans, which were designed to make more data available to consumers. To be clear, customers will continue to be able to use FaceTime over Wi-Fi irrespective of the data plan they choose. We are broadening our customers’ ability to use the preloaded version of FaceTime but limiting it in this manner to our newly developed AT&T Mobile Share data plans out of an overriding concern for the impact this expansion may have on our network and the overall customer experience.”
In this one paragraph Quinn hides everything you need to know about this move. The shared plans get a plug, the sleight of hand that equates Wi-Fi with cellular access is accomplished, and AT&T plays the network-management card, which is kind of like a get-out-of-jail-free card for net-neutrality violations anyhow. Defining Wi-Fi as wireless helps AT&T in both wireline and wireless net-neutrality fights, which is why this is such an important move.
The idea of network neutrality is simple at its core: ISPs can’t discriminate against packets on its network by blocking or prioritizing lawful traffic. This protects against AT&T blocking VoIP apps it doesn’t like on its wireless network or setting up agreements with certain app developers and asking them to pay more for faster or guaranteed delivery over any of AT&T’s networks.
It’s an idea that looks good on paper (and on wireline networks). But when it comes to wireless—where the last mile to consumers is limited by the amount of spectrum a carrier holds—if too many packets try to reach users, packets drop and calls fail. Thus, when the FCC created its network-neutrality rules, it carved out exemptions for wireless, basically telling carriers to be transparent and not to block competing video and voice services. In both the wireline and wireless rules, it also gave ISPs a lot of leeway on how to deal with congestion.
If AT&T can set a precedent here that Wi-Fi is just as good as cellular when it comes to offering competing apps, then it could limit apps it doesn’t want on its more constrained cellular network to its Wi-Fi network. That allows it to strongly influence the apps that consumers use on the AT&T cellular network and drives consumer behavior in a more subtle way than huge early-termination fees.
AT&T may also use this implication—that Wi-Fi is just as good as cellular—to argue that some of the more stringent rules of wireline network neutrality don’t apply on the AT&T Wi-Fi network. While no one can say what AT&T might do, legal sources point out that even if AT&T tries to argue this, the FCC’s network neutrality rules clearly place Wi-Fi under the protections of wireline networks. However, it can use access to apps over its Wi-Fi network as a way to argue it isn’t blocking a competing app as it’s doing here. So perhaps in the future AT&T could block apps over its Wi-Fi network that it doesn’t like but that don’t compete with voice or video. Consumers shouldn’t just get upset over AT&T blocking FaceTime but about the greater games Ma Bell is playing.
Also from GigaOM:
Carrier IQ and the Continued Erosion of Operator Trust (subscription required)