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Should net neutrality rules stop T-Mobile's music streaming offer?

Net NeutralityMedia IndustryMergers, Acquisitions and TakeoversT-MobileFederal Communications CommissionVerizon CommunicationsOnline Media Industry
T-Mobile's music streaming offer is an argument against Sprint merger, not a net neutrality problem
The broader the definition of net neutrality, the harder it is to distinguish good from bad

When T-Mobile announced the other day that it would exempt streaming music services from its wireless data caps, I thought it was the best reason yet for Washington to stop the company from being swallowed up by Sprint. But some consumer advocates thought it was a good reason for Washington to spank T-Mobile.

Analysts have been speculating for weeks that Sprint, the third-largest wireless carrier, is preparing to make a multibilion-dollar offer for T-Mobile, the fourth largest. There's a real question whether the deal could pass muster with antitrust regulators, who take a dim view of mergers within a market where a handful of companies serve most of the customers. That's why the feds put the kibosh on AT&T's attempt to buy T-Mobile in 2011. But proponents of the merger argue that it would help competition by giving the combined company the revenue and spectrum assets needed to compete with Verizon and AT&T's wireless services, each of which has captured more than a third of the U.S. market.

The streaming music gambit by T-Mobile illustrates the trade-off. With Sprint and T-Mobile trailing Verizon and AT&T, we've had two companies trotting out innovative offers in a bid to attract customers. For example, Sprint stuck with unlimited data plans that AT&T and Verizon abandoned, although there are signs that its commitment is wavering. And T-Mobile was the first to pull device subsidies out of its monthly fees, giving customers who already own phones a cheaper option.

The music streaming offer from T-Mobile is the latest gambit. As of Wednesday, subscribers with data plans were able to use any of a dozen different online music services, including Pandora, Spotify, iTunes Radio and Rhapsody, without using any of their monthly data allotment. The offer aims squarely at the young adults who represent the biggest group of smartphone users. And smartphone users are the most coveted customers, given that data charges are the only part of the carriers' business that's growing.

The two companies' track record of experimentation argues against the merger, particularly in respect to the Federal Communications Commission's public interest test. After all, two innovative underdogs are invariably better than one if both can survive in a market. That's a big if, however, and it's likely to be the key question reverberating around any Sprint attempt to buy its smaller rival.

Michael Weinberg at Public Knowledge, a tech advocacy group, offered a different take on T-Mobile's streaming deal Thursday.

"T-Mobile’s announcement that they will exempt a handful of music streaming services from their data cap is but the latest example of ISPs using data caps to undermine net neutrality," Weinberg wrote in a blog post. Exempting some music services from the caps will make them more attractive to consumers than the services that aren't exempted. "This type of gatekeeping interference by ISPs is exactly what net neutrality rules should be designed to prevent," he added.

Granted, T-Mobile lets users vote to add streaming services that aren't yet on the list, but Weinberg took little comfort from that. "For disruptive startups that aspire to grow, counting against T-Mobile’s cap will act as a drag on their ability to get customers -- exactly the customers the startup would rely on to vote them into the unmetered lane," he wrote. "For music services that are proudly niche -- community radio stations WFMU and KCRW both have great apps with strong followings here at PK -- their fate is to be left out of this agreement entirely."

That's very egalitarian of Weinberg, but I don't have such an expansive view of net neutrality. To me it's not about providing a perfectly level playing field; it's about ensuring that ISPs don't help their partners by degrading the way other companies' traffic is handled.

Paid prioritization of traffic is hugely problematic because putting one company's data at the head of the queue holds every other company's data back. Lifting a data cap for selected content providers, on the other hand, would give them a boost without making the status quo any worse for other companies.

T-Mobile's new offer will probably boost usage of the music services in the program, but it hardly seems like a deathblow to those that aren't. There are multiple ways to get around mobile data caps, and consumers are using them. Witness, for example, the steady shift of smartphone data use from mobile to Wi-Fi networks, where the caps are high to nonexistent.

Of course, T-Mobile could avoid this debate by exempting all legal music services from the caps (or by dropping the caps, which Weinberg argues impose artificial scarcity). That would retain one benefit of the offer -- making T-Mobile's service more appealing to young adults and online music junkies -- but eliminate the company's ability to cut deals with individual services.

That sort of dealmaking troubles Weinberg. I'm more open to it -- again, as long as it doesn't involve degrading other companies' access to their customers -- because consumers may actually benefit from it. If you're a Spotify user, the T-Mobile announcement is a very good thing. You're not so pleased if you're an Rdio user, but you're no worse off than you were the day before.

Besides, the more broadly you define net neutrality, the harder it is to distinguish between what's problematic and what isn't. Several mobile carriers have offered plans over the years that bundled a music service in with their voice, text and data allotments. T-Mobile does that today with Rhapsody. Such deals clearly influence customers to use the favored service. And how about the deals carriers strike to pre-load apps on their smartphones?

The reality of the Internet is that it's no egalitarian playground. ISPs' routers may treat all music services' traffic equally, but some services have the resources to deliver higher fidelity and more reliable audio than others. Some also have the wherewithal to persuade carriers to pre-load their apps or bundle in their services. The Internet is no different from the physical world: Big, deep-pocketed competitors have advantages over small businesses and startups.

The FCC's current net neutrality proposal would allow ISPs to strike deals with "edge providers" as long as they're not "commercially unreasonable." Chairman Tom Wheeler argues that the agency has to take a more permissive approach than it did in 2010 because the D.C. Circuit Court of Appeals essentially told it to when it threw out most of the 2010 rules this year. The agency doesn't have the authority to impose a categorical ban on broadband ISPs discriminating unreasonably among edge providers, as the 2010 rules would have done, as long as broadband access is classified as an information service.

And there are some at the FCC who argue that paid prioritization isn't necessarily a bad thing, depending on the circumstances. Matthew S. DelNero, the deputy chief of the FCC's Wireline Competition Bureau, said at a recent engineering conference that there may be times when the societal benefits of prioritization are great enough to justify it. For example, DelNero told the gathering, the public might want ISPs to accommodate home healthcare services or public -safety apps that couldn't work without prioritization.

That argument doesn't fly with Public Knowledge or the numerous other net neutrality advocates that want the FCC to reclassify broadband as a telecommunications service and lay down strict prohibitions against ISPs influencing traffic on the last mile. In fact, they'd stretch the FCC's purview to cover traffic to the last mile, as in the interconnection deals between edge providers such as Netflix and ISPs such as Comcast.

I'm all in favor of strictly regulating paid prioritization, bearing in mind the benefits DelNero described. But if the FCC extended its net neutrality reach beyond prioritization, where would it stop?

Follow Healey's intermittent Twitter feed: @jcahealey

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Net NeutralityMedia IndustryMergers, Acquisitions and TakeoversT-MobileFederal Communications CommissionVerizon CommunicationsOnline Media Industry
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