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The FCC’s Wireless Telecommunications Bureau has found sponsored data programs from both AT&T and Verizon violate the commission’s Open Internet Order despite defenses from both carriers of their practices.

In a Wednesday letter to Massachusetts Senator Edward Markey, FCC Chairman Tom Wheeler said a recent investigation and subsequent report by the Bureau determined that while “that zero-rating per se does not raise concerns … two of the programs reviewed, AT&T's ‘Sponsored Data’ program and Verizon's ‘FreeBee Data 360’ program, present significant risks to consumers and competition.” The other two programs under investigation, which included T-Mobile’s Binge On service, were found to be in compliance.

According to Wheeler, the Bureau’s distinction between the compliant and non-compliant offerings boils down to the carriers’ application of equal – or in the case of AT&T and Verizon, unequal – terms for edge providers across the board. Where Verizon and AT&T are able to zero rate their own content at no cost to themselves, third party providers must pay for the same. T-Mobile, on the other hand, charges neither edge providers nor end users for its Binge on service, the Bureau noted.

“While observing that AT&T provided incomplete responses to staff inquires, the report states that the limited information available supports a conclusion that AT&T offers Sponsored Data to third party content providers at terms and conditions that are effectively less favorable than those it offers to its affiliate, DIRECTV,” Wheeler wrote. “Unlike T-Mobile, which charges all edge providers the same zero rate for participating in BingeOn, AT&T imposes hefty per-gigabyte charges on third parties for use of Sponsored Data. All indications are that AT&T's charges far exceed the costs AT&T incurs in providing the sponsored data service. Thus, it would appear that AT&T's practices inflict significant unreasonable disadvantages on edge providers and unreasonably interfere with their ability to compete against AT&T's affiliate, DIRECTV. The structure of Verizon's FreeBee Data 360 program raises similar concerns. We are aware of no safeguards that would prevent Verizon from offering substantially more costly or restrictive terms to enable unaffiliated edge providers to offer services comparable to Verizon's affiliated content on a zero-rated basis.”

The Bureau’s full report – first spotted by Ars Technica – can be found here.

The findings were praised by Michael Calabrese, Director of the Wireless Future Program at New America’s Open Technology Institute, who commented that sponsored data amounts to “little better than back-door paid prioritization.” Calabrese said Wheeler and the Bureau “deserve enormous credit for finally clarifying that the AT&T and Verizon sponsored data programs create a competitive advantage for their own video or other content, an outcome at odds with core principles of network neutrality.”

Despite the report’s release, AT&T continued to defend its sponsored data offerings, noting the practice has “enabled millions of consumers to enjoy the latest popular content and services – for free.”

“It remains unclear why the Wireless Bureau continues to question the value of giving consumers the ability to watch video without incurring any data charges,” AT&T’s Senior Vice President of Federal Regulatory Joan Marsh said. “We hope the government continues to support a competitive marketplace that lowers costs and increases choice for consumers.”

Verizon did not immediately respond to a request for comment.

One thing that Wheeler and the Bureau didn’t mention in the report was any enforcement action that might be taken against the carriers, and probably for good reason.

Backlash to the report from Republican Commissioner Ajit Pai – at the top of the list among contenders to replace Wheeler on January 20 – was swift. Pai said the report, which he noted he saw only after it was publicly released, “does not reflect the views of the majority of Commissioners” and called such “midnight regulations” “sad.”

“I am confident that this latest regulatory spasm will not have any impact on the Commission’s policymaking or enforcement activities following next week’s inauguration,” he added.

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