Despite carrier enthusiasm, toll-free data plans face hurdles
Carriers are increasingly expressing enthusiasm for the concept of toll-free data plans, in which content providers and applications developers would pay carriers to carry their content, and, in most scenarios, such content would not count toward a subscriber's data cap. AT&T (NYSE:T) has been the most vocal proponent of such a concept, with its CEO Randall Stephenson saying in June that the "content guys are asking for it."
To me, the biggest stumbling block to all of this is actually getting the content providers to bite, especially over-the-top players. Would a Hulu, Netflix or YouTube pay a carrier for the privilege of directing users to their content? Currently, the relationship between content providers and carriers is less direct: Customers pay carriers for data access and sometimes pay content providers for subscriptions. Carriers can argue--and have--that content providers are essentially free-riders on their network, and that by paying carriers they can differentiate themselves from other OTT players and win the loyalty of subscribers by "zero-rating" subscribers' access charges. It's a potentially appealing vision, but content providers will have to ensure that the benefit they are getting outweighs whatever they are paying to carriers.
Ann Hatchell, director of data experience marketing at Amdocs, argued that such plans make sense for content providers that rely on advertisers and volume. I'm not so sure. What if a carrier were to strike a deal along these lines with one content provider? Would other content providers push for cheaper rates from the carrier? Or would they just encourage their users to access their content via Wi-Fi networks? Clearly, carriers would welcome any kind of payment from content providers that they are not receiving now, but I don't think such relationships would be without friction.
Additionally, as Dean Bubley, an analyst with Disruptive Wireless, has noted, the content providers will want to know if their traffic is going over Wi-Fi, a femtocell or the macro network and be compensated accordingly. Further, if a subscriber roams onto another carrier's data network, is Netflix going to be liable for the roaming costs? Such details are complicated and would all have to be ironed out for toll-free plans to fly.
I'm not saying that such plans cannot happen or will not happen. However, there are clearly technical and commercial hurdles to making toll-free plans a reality. All of this and more is explored in a new feature I've written on the topic. I'll be curious to hear your thoughts.--Phil