Analysts: Sponsored data plans for wireless will survive FCC's net neutrality rules

The FCC's recently published net neutrality rules will not spell doom for wireless carriers that want to launch sponsored data plans, according to a report from analysts at Wall Street firm New Street Research.

In a lengthy research note on the new rules, which span 300 pages, the analysts note that the FCC left the door open for sponsored data plans. As expected, the commission "did not take the view that sponsored data should be treated with a bright line ban, as being similar to paid prioritization," wrote New Street analysts Jonathan Chaplin, Spencer Kurn, Zach Monsma and Vivek Stalam. Sponsored data plans give customers free access or zero-rated data to certain services that the providing companies subsidize.

Indeed, the FCC noted in its rules that some commenters asserted that "sophisticated approaches to pricing also benefit edge providers by helping them distinguish themselves in the marketplace and tailor their services to consumer demands. Commenters assert that such sponsored data arrangements also support continued investment in broadband infrastructure and promote the virtuous cycle, and that there exist spillover benefits from sponsored data practices that should be considered."

At the same time, the FCC noted that sponsored data plans have their detractors, and that some commenters "strongly oppose sponsored data plans, arguing that 'the power to exempt selective services from data caps seriously distorts competition, favors companies with the deepest pockets, and prevents consumers from exercising control over what they are able to access on the Internet,' again with specific reference to mobile services. In addition, some commenters argue that sponsored data plans are a harmful form of discrimination. The record also reflects concerns that such arrangements may hamper innovation and monetize artificial scarcity."

Ultimately, the FCC decided to taken an open-minded approach to sponsored data plans. "We are mindful of the concerns raised in the record that sponsored data plans have the potential to distort competition by allowing service providers to pick and choose among content and application providers to feature on different service plans. At the same time, new service offerings, depending on how they are structured, could benefit consumers and competition," the agency wrote. "Accordingly, we will look at and assess such practices under the no-unreasonable interference/disadvantage standard, based on the facts of each individual case, and take action as necessary." 

For a variety of reasons, the New Street analysts do not think the FCC would seek to ban any of the existing sponsored data programs in the market. "The Commission adopted a similar, case-by-case analysis of data caps and again, we do not see a change in the current policy of allowing the market to set the terms of such offerings in the analysis," they wrote.

Many wireless industry advocates have been alarmed by the FCC's rules, worrying that they could stifle innovation and be too proscriptive in pricing. "Now is the time when we need to be hitting the gas to maintain our position atop the global leaderboard for wireless connectivity and entrepreneurial ingenuity," noted Mobile Future Chairman Jonathan Spalter last week. "Unfortunately, the FCC's move to reclassify broadband under Title II has large industry players and budding mobile innovators alike stopping short to consider seriously the long term implications of these unnecessarily restrictive rules and divert resources to the regulatory and court battles that will now be sprouting up all over the country. With so many details still in flux, it's extremely important for Congress to step in and bring much needed certainty to the dynamic mobile marketplace."

Interestingly, the New Street analysts think that the new rules would not prevent Comcast (NASDAQ: CMCSA) from buying a wireless carrier. They wrote that Comcast moving into mobile "is not dependent on buying a current mobile provider," but if that were to happen, they think a deal would be approved. "We could see some conditions (depending on the market structure at the time) relating to Comcast providing MVNO access or access to its Wi-Fi footprint, so as not to foreclose others from entering through a Wi-Fi first model, but we don't see an outright rejection as likely," they wrote.

For more:
- see this FCC order

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