AT&T-Time Warner Deal Stokes Debate Over ‘Zero Rating’

AT&T’s practice of exempting its streaming video services from data-usage caps is rankling competitors and shaping up as a major issue for regulators set to weigh the company’s proposed acquisition of Time Warner.

When AT&T rolls out its $35-a-month DirecTV Now online TV service, its wireless subscribers will be able to stream as much as they want without it counting toward their monthly data caps. But if the same customers binge on outside services like Netflix or Hulu, those bits will add up—potentially leading to surcharges. Streaming services are likely to press regulators to scrutinize the practice—known as “zero rating”—in their review of the AT&T-Time Warner deal, people familiar with the matter said. TV networks that have streaming apps, like CBS and ESPN, also may have a stake in the matter. Several companies are likely to argue that AT&T’s DirecTV Now approach is anticompetitive, and will push for conditions on the merger, the people say.

Some Federal Communications Commission staffers already view AT&T’s DirecTV Now exemption as an example of improper zero-rating, people familiar with the situation said, because it disadvantages AT&T’s streaming rivals. The agency is considering how to address zero-rating and whether to raise it as a merger issue, the people said. Other options the agency is weighing include industrywide guidelines on zero-rating.