It was only a matter of time before one of the behemoth Internet and broadband companies tried to find a way around net neutrality rules. Everyone loves to hate Comcast, and they’re likely figuring out how to make lemonade after the Federal Communication Commission’s ruling that they can’t prioritize certain websites over others with faster web speeds. But in this case, it appears Verizon might be the first telecommunications company to find a creative (others might say underhanded) way of skirting the net neutrality rules.
None of the Internet providers are very happy about the FCC’s ruling that the Internet should be treated and priced as a utility, meaning that preferential treatment can’t be given for anything accessed through the Internet. Verizon’s CEO, Lowell McAdam, wrote a letter to several Congressmen at the end of March urging them to “re-take responsibility for policymaking in the Internet ecosystem,” basically asking for a do-over of net neutrality rulings. The companies aren’t likely to just walk away and not fight back. In fact, at a media, Internet, and telecommunications conference hosted by Deutsche Bank in March, Verizon Executive Vice President and Chief Financial Officer Fran Shammo predicted there would be a lot of litigation and much time before the entire issue is entirely settled.
In the meantime, Shammo’s employer is moving forward with plans for a video service, what’s known in the industry as “over the top” or OTT services. OTT services piggyback on broadband Internet services, which customers typically have to purchase separately. Dish and Sony are also releasing comparable products, for example, but are forced to rely on that piggybacking because they don’t have their own network. Verizon, in contrast, has its own 4G wireless network and can allow customers to stream mobile video anywhere, cutting out the middlemen of other Internet providers. Verizon’s product has been in development for four years, Shammo said, which means it was in the pipeline long before net neutrality was even mentioned.
This is where the problem comes in: If users are streaming video content, they risk going over their data limits (which normally costs an extra $15 per GB for Verizon customers). If Verizon actually wants its customers to use the service and watch the hundreds of hours of video, then it might need to come up with a different sort of payment plan (no cost details have been made available yet). In that solution, Investor’s Business Daily points out that Verizon might get very close to crossing the line in terms of net neutrality. If the company allows customers to use its OTT service without attributing it to the customer’s data usage, it could be viewed as a type of net neutrality infraction.
It’s this situation that puts Verizon and other phone companies in the same boat as Comcast and Time Warner Cable, at least where net neutrality is concerned. Video streaming on data plans, while available, is hugely taxing to the data caps that most carriers have on their customers’ plans. For example, Verizon’s data calculator shows that streaming about 15 hours of video on your smartphone will use 5 gigabytes of data per month, when using the 4G network. Viewing or sending 1,500 emails, by contrast, uses about 1 GB, and the company doesn’t even bother to calculate how many thousands of texts you’d have to send to impact your data usage significantly.
In its descriptions of the new video service, scheduled to be released this summer, Verizon said it will offer more than 200 hours of original content per year with an agreement with AwesomenessTV and DreamWorksTV. Much of the content will be geared toward young users and millennials, who identify more and more with using their mobile devices for entertainment. “Mobile is where our audience lives which is why we are looking forward to working with Verizon to introduce our programming and talent to their massive customer base,” said Brian Robbins, CEO and co-founder AwesomenessTV.
The FCC hasn’t specifically said if ignoring data caps for one type of video streaming violates its ruling on net neutrality. T-Mobile’s Music Freedom service, which allows users to stream music without adding to their data tally, is a program along the same lines, Investor’s Business Daily points out. It’s unclear exactly how the FCC will view this sort of tactic, because it essentially gives customers of certain companies better rights to certain content. Telecommunications analyst Craig Moffett told Investor’s Business Daily that it’s not likely to make the regulators happy, though. “I think that would be a very provocative move,” Moffett said. “I don’t think the FCC would be pleased.”
Obviously, we’ll have to wait and see how exactly Verizon handles payment plans for the service if users are streaming while accessing their data plans. But the company’s leaders haven’t been shy about finding “creative” solutions. After all, they have profits to reap and investors to appease. Shammo, Verizon’s CFO, was asked a question at the Deutsche Bank conference about how the company will “get around” these sorts of regulatory issues so investors continue to have a shot at making money. The regulatory regime isn’t anything new, Shammo responded. “We’re pretty good at figuring out how the rules are played, and play by the rules,” he added.
Though he didn’t say it directly, Shammo’s language evokes a game mentality. If it’s all a game to figure out exactly what they can get away with before the FCC objects, almost anything is on the table.
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