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How the new AT&T could bully its way to streaming domination

How the new AT&T could bully its way to streaming domination


Without net neutrality rules, telecom-backed streaming services are free to fight dirty

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Illustration by Alex Castro / The Verge

After decades of soaring cable TV prices, the streaming revolution has finally arrived. Netflix, YouTube, Hulu, and Amazon are all fully stocked services, entirely capable of competing with cable on content, and they’re all rated far higher in customer satisfaction than the companies they hope to supplant.

The result is new competition for cable companies that’s pushing them into the streaming business. Nearly every broadcaster that’s currently in the cable TV lineup will offer some kind of direct-to-consumer streaming service by 2022. Most notable will be Disney’s looming Disney+ service, which will soon be the exclusive streaming home of must-have content from Pixar, Marvel, and the Star Wars universe. AT&T plans to launch its own streaming service next year, drawing on content from DC Comics and Harry Potter that was acquired as part of the recent Time Warner deal.

“AT&T will have carte blanche to discriminate in favor of the video content it owns.”

But telecom companies have a unique advantage: they control the content and the networks that content travels over, presenting a wonderful opportunity to hamstring competitors and unfairly advantage their own services. Heavy-handed tactics like throttling and usage caps would have been blocked by the 2015 net neutrality rules. But the rules were rolled back by Trump Federal Communications Commission chairman Ajit Pai, and those networks could be a crucial advantage in the streaming wars.

The first tool in telecom’s arsenal is zero-rating, which lets preferred services get a break on network-level data charges. Wireless users may find that AT&T’s DirecTV Now service doesn’t count against their monthly usage limit, an arrangement that was still allowed under Wheeler’s FCC but was increasingly frowned upon.

With preferred services in a separate lane, telecoms are free to degrade service for standalone streaming services. Both Comcast and AT&T have long imposed costly and unnecessary usage caps and overage fees on broadband connections. Those limits often don’t apply to their own content, but they do apply to competitors like YouTube or Netflix, driving up consumer costs should they pursue these alternative options. Netflix streaming on an AT&T wireless device often results in either additional charges or a throttling of the connection, not-so-subtly incentivizing you to use AT&T’s service.

All three major ISPs have already explored the idea of driving up costs that streaming competitors must pay to access ISP networks at interconnection and peering points at the heart of the internet. Back in 2014, Netflix and transit operators accused ISPs of letting peering points intentionally congest, resulting in mysterious Netflix slowdowns that only resolved once ISPs were paid more money. When the FCC’s 2015 net neutrality rules banned this sort of gamesmanship, the entire contentious cross-industry battle suddenly and almost magically disappeared.

Former FCC lawyer Gigi Sohn tells The Verge that ISPs now have a blank check to behave anti-competitively. With a weakened FCC and no net neutrality rules, ISPs will be free to throttle or block competing services, drive up competitor costs for essential content and network access, or punish users that veer away from an ISP’s own services.

“The repeal of net neutrality — and more importantly, the abdication of the FCC’s duty to protect consumers and competition in the broadband market — ensure that AT&T will have carte blanche to discriminate in favor of the video content it owns,” says Sohn.

Corporate consolidation makes the problem even worse. AT&T bought DirecTV in 2015 for $67 billion, and it’s poised to grow even more powerful with a still-pending acquisition of Time Warner that’s worth $85 billion. That would give the telecom giant ownership of programming like HBO and CNN that’s essential to the company’s newfound competitors.

The Department of Justice sued to stop the highly controversial merger, citing a series of experts who documented in detail how a bigger, stronger AT&T would be heavily incentivized to drive up programming costs for competitors in a bid to favor its own services.

Verizon or AT&T could throttle Netflix 4K streams, while avoiding such limitations for their own video

But in a widely criticized ruling, US District Court Judge Richard Leon ignored those experts and approved the deal without a single condition. Within weeks, AT&T had, just as critics and the DOJ’s expert witnesses predicted, raised prices on both consumers and competitors like Dish Network to recoup the mammoth debt that was created by the deal.

“Whether it means freeing Time Warner and DirecTV content from restrictive data caps to the detriment of other streaming services, or charging cable and satellite rivals more for must see programming, AT&T will certainly take advantage of an absent FCC and weak antitrust enforcement,” Sohn says.

Tim Wu, author of The Curse of Bigness: Antitrust in the New Gilded Age, tells The Verge that the DOJ’s recent loss is simply the culmination of a several-decade decline in meaningful antitrust enforcement in America.

As for AT&T, Wu argues that “Judge Leon embarrassed himself in the opinion by failing to take into account the larger picture, with its lopsided crediting of all of the defendant’s witnesses, and strained efforts to find a way out of [DOJ expert Carl] Shapiro’s reasoning.”

The death of net neutrality will make wireless devices particularly vulnerable. AT&T and Verizon have been accused of erecting artificial and unnecessary barriers on wireless services, often under the guise of battling network congestion. AT&T, for example, was widely criticized in 2012 for blocking Apple’s FaceTime in a bid to drive consumers to more expensive plans. In the years since, both AT&T and Verizon have been similarly creative when selling users “unlimited” data plans with arbitrary limits.

Competitors without telecom support could face higher costs and anti-competitive restrictions

Verizon’s unlimited plans, for example, now throttle all video to 480p (about 1.5 Mbps) by default and ban the streaming of 4K video entirely. To receive video streams at their full quality, users have to pony up significantly more cash. Researchers have suggested that this has nothing to do with managing network congestion and everything to do with making additional money.

In the absence of net neutrality rules and FCC oversight, it’s not hard to see how this idea could be expanded and abused. Verizon or AT&T could, for example, throttle Netflix 4K streams specifically, while avoiding any such limitations for its own video services, justifying the discrepancy by implying that their own services simply work more efficiently by design.

As Verizon’s recent throttling and upselling of California firefighters showed, this kind of behavior is far from theoretical. These companies are, historically, fixated on crafting arbitrary and unnecessary limitations consumers, and competitors are then forced to hurdle at ever-escalating cost.

Competitors without telecom support could face higher costs and anti-competitive restrictions with only the Federal Trade Commission (whose authority here is extremely limited) to turn to. Without net neutrality’s transparency requirements, ISPs won’t have to clarify the limits of a connection, meaning competitors and consumers alike may not even realize what’s occurring.

Like the boiling frog fable, ISPs are likely to move slowly to minimize consumer backlash and negative media coverage. But the past is filled with examples of ISPs wielding their advantage as network gatekeepers as a bludgeon, and critics say it won’t take long before they use that power to reduce choice, raise rates, and bully their way to the top of the streaming heap.