AT&T’s Sponsored Data plan isn’t the end of net neutrality but it is a new model for wireless

AT&T’s(s t) sponsored data announcement will generate outrage in many circles as net neutrality fans and those worried about the next generation of startups cry foul over Ma Bell’s plans to let companies pay to let certain content bypass AT&T’s data caps. But depending on what AT&T charges and how competitive you think the wireless market is, I can’t work myself into a froth just yet.

Instead, based on the implementation, I see an evolution of the internet on the mobile side that makes sense given the limitations of spectrum and the demand for mobile content. As people gave up their unlimited data plans a few years back (because carriers would have made their lives miserable otherwise), the wireless operators now have the perfect stick to beat both the end consumer and the content companies into participating in a double-sided market. One where the consumer and the content provider both pay AT&T.

Could Microsoft buy Skype calls that wouldn't count against your data cap?

Could Microsoft buy Skype calls that wouldn’t count against your data cap?

In the Sponsored Data examples, AT&T envisions a movie company buying a pool of data so it can show people a trailer for free or a health insurance company making forms or instructional videos available for free to its clients. Companies would purchase sponsored data via an API and can offset the end consumers’ data costs for a general type of content (all VoIP calls on Tuesday are sponsored by Google(s goog)), specific apps (Facebook(s fb) buys a pool of data so all Wall posts won’t count against your data cap during the Thanksgiving week) or for specific content as mentioned above.

An AT&T spokesman says that the process is automated thanks to an API and back end built and supported by Amdocs(s docs) and Ericsson(s eric), and added that the price paid by the companies for the data would be “in range with those paid by consumers.” That last bit is almost nonsensical given the consumer data prices vary tremendously depending on the type of plan a consumer is on. However, when the API is launched presumably we’ll be able to see those prices.

A new advertising model or the end of net neutrality

Is this fair? While there are plenty of valid arguments about whether data caps are the right way to solve for worries about network congestion, in the mobile world they have become the de facto standard at the big operators. And even plans that offer unlimited data reserve the right to slow your speeds or throttle your usage in times of congestion.

Meter limit reached - time expired

So if you accept data caps as a reasonable way for wireless carriers to manage their networks, then letting companies pay to let certain content or apps bypass those caps seems like a valid innovation in the carrier business model as opposed to a subtle violation of network neutrality. Of course, there are huge debates over how competitive the wireless market actually is, and with AT&T pushing this, it’s likely that Verizon, which has also signaled an interest in such models, might follow suit.

So you’ve got the two largest carriers both pushing a plan that uses caps as a stick to get content companies to pay for access to end user eyeballs. On mobile networks this may not make people happy, but it’s not inherently evil or even problematic. AT&T says it won’t prioritize the packets that companies send as part of the sponsored data buys, which means the only penalty is the one that organizations like Free Press are upset over — that this will hurt startups.

The effect on startups

I won’t lie. It could. What this program is saying is that some consumer content will be free for mobile subscribers on the AT&T network if an organization wants to pay to offset those data costs. So a customer might be able to shop at Wal-Mart(s wmt) on their mobile for free while having to pay a data charge to surf on Amazon(s amzn). Or they might get video from Hulu gratis and have to pay to stream Netflix(s nflx).

Wal-Mart Store, walmart

However, an AT&T 4G connection is not the only way to stream video, so a consumer will have to now figure out who might have a deal with his or her wireless provider or seek out an alternative if they want to avoid data charges. Right now, consumers already do that when they choose to use Wi-Fi for watching video instead of a cellular connection. Honestly this is where consumers will have the most to lose — it will be more complicated to navigate a wireless contract because you may have to account for these side deals carriers might strike for sponsored content or entire channels.

But this idea that it will hurt innovation is a harder argument to make, I think. AT&T has chosen to implement this using an API. Unless it imposes incredibly high prices or onerous terms, it has created a neutral way for others to buy sponsored content that doesn’t require a huge sales team or some crazy negotiating by the CEOs of large companies. A startup might decide that free data to encourage others to uses its video-sharing app is how it wants to spend its launch budget. As long as it can do so without some onerous terms or certifications, this could be beneficial for it. It also opens the door to some questionable sponsored data options that might see AT&T imposing a filter (what if NAMBLA wants to support free downloads of questionable content?).

The situation here is akin to political advertising, where many of us recognize that the candidates with the most money to spend on advertising often wins, though the system is still open to all contenders. If we begrudgingly accept that idea in electing our government, why would we blanch when a wireless company (that we can switch from) tries to implement a business model that might have a similar result? It may not be ideal, but it’s not unfair, and as the internet becomes a bigger and bigger business it’s ridiculous to think that business interests and business models that seek to capitalize on the amount of time we spend online won’t arise.

Here’s where AT&T’s plan becomes a problem

But — and there’s a big but here. I may not like this model on wireless and I don’t see it as a huge public policy problem worth of regulatory intervention, but if you moved this model to wireline I would have a fit. And that’s because consumers have less choice in wireline internet service and because capping broadband on wireline networks is not about managing a limited supply but solely about generating revenue and preserving the pay TV business.

This is why Gigaom is against data caps on wireline networks. Because on most forms of consumer wireline broadband, providing the capacity to meet consumer demand is possible without caps and while making a profit. Ask Sonic.Net or Google.

Those profits may not be what the incumbent providers are used to, but that’s a different issue — and why we think the communications industry needs to adapt. So as providers like AT&T implement data caps on their wireline networks, the threat of them using those caps to bring in the same two-sided business model on that network looms. And that would be a problem. Because on those networks, users don’t have as much choice on provider and the content companies don’t have another route to the consumer.

But on mobile, that’s a tougher argument to make, even if the end result of AT&T’s Sponsored Data may be a higher price tag for companies that want to reach select mobile subscribers.