Report: ESPN in talks with U.S. carrier on toll-free data plans

Sports media giant ESPN has talked with at least one large U.S. carrier about subsidizing wireless access to its content, according to a report in the Wall Street Journal. These discusions could potentially lead to a "toll-free" data plan with carriers and open up new revenue streams for both parties.

The report, which cited unnamed sources familiar with the matter, said that in one potential scenario, ESPN would pay a carrier to ensure that customers viewing ESPN mobile content wouldn't have that usage counted toward their monthly data caps. Sharing advertising revenue is another potential avenue for carriers and content providers to explore, the report noted.

Importantly, the article said that such a deal between ESPN and a U.S. carrier is not imminent and that ESPN isn't sure if the economics of such an arrangement would work. An ESPN spokeswoman declined to comment.

Executives from U.S. wireless carriers, especially Verizon Wireless (NYSE:VZ) and AT&T (NYSE:T), have openly discussed the idea of launching toll-free data plans where content providers pay for access to a carrier's network, essentially subsidizing usage of their services. Sprint Nextel (NYSE:S) and T-Mobile US (NYSE:TMUS) still offered unlimited data plans, and have not embraced the concept as thoroughly.

No such deals have come to fruition yet. However, they may be coming sooner than later, according to Verizon Wireless CEO Dan Mead, who discussed the topic briefly earlier this week at an investor conference. Mead said that Verizon is "exploring those opportunities and looking at every way to bring value to our customers," in the context of toll-free data plans, according to a transcript of his remarks.

The most widely understood example of the model is Amazon's Kindle, whereby the cost of downloading books is built into the cost of the book. "I would say that that could be an early representation of the model," Mead said. "If you start to think about advertising and what else you could do with it, I think we see the possibility to expand far beyond those early days." Mead added that while he did not have a timeline for when such a deal would be announced, he believes that based upon the activity of discussions in the industry it will not be very long.

AT&T CEO Randall Stephenson said in June 2012 that he though toll free data plans likely will catch fire in the next 12 months and that "the content guys are asking for it."

ESPN seems like an ideal company to test out such a model, since the company now has 45 million digital users, including about 16 million that access ESPN content exclusively from mobile devices, according to the Journal. The company not only has a mobile website but also numerous apps, including WatchESPN, which streams the live signals from ESPN's TV channels to mobile devices. Additionally, ScoreCenter, the company's top mobile app, has been downloaded more than 40 million times.

The report noted that "one big carrier" told ESPN that significant numbers of its subscribers reach their monthly cap before the end of the month, which causes data usage to drop. For ESPN and other content companies, a toll-free data arrangement would let them bypass usage caps. For carriers, the deals could present a new revenue growth stream as smartphone penetration continues to rise and subscriber growth slows. If ESPN struck a deal with one major carrier, it would likely do so with others, especially those with usage-based data plans.

In December, Comcast started to allow its Xfinity TV customers who also subscribe to Showtime to download Dexter, Homeland and other hit original series to Apple's (NASDAQ:AAPL) iPad and Android tablets and smartphones for offline viewing. Comcast, which has a marketing and innovation joint venture with Verizon Wireless, said that Verizon customers would be able to download and stream content directly to mobile devices via Verizon's 4G LTE network. Importantly, Comcast spokesman Peter Dobrow told FierceCable at the time that the data consumed for downloading content via the Verizon network would count toward the subscriber's mobile data plans.

Still, not every content company is as keen on the deals, and the Journal reported that a least one other major media company rejected such plans because they did not want to pay carriers to subsidize usage of their apps.

Additionally, the plans could attract the interest of the FCC, which has codified net neutrality rules for wireless and wired networks (Verizon has challenged the rules in court and a federal appeals court is expected to rule on them this year). The rules go light on wireless networks and wireless carriers do not face the same restrictions wired operators will on blocking Web traffic and other applications--a ban on unreasonable discrimination in transmitting lawful network traffic.

"Creating a second revenue stream for mobile broadband is the holy grail for wireless operators but collecting fees from content companies would probably make the FCC take a close look into the policy implications," Paul Gallant, managing director at Guggenheim Securities, told the Journal. An FCC spokesman declined to comment.

For more:
- see this WSJ article (sub. req.)

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