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TheStreet Open House

Is AT&T's 'Sponsored Data' Evil?

Stocks in this article: T TMUS VZ S

NEW YORK (TheStreet) -- Tech reporters, unlike finance reporters, were able to leave the East Coast icebox this week and go to fabulous Las Vegas for the Consumer Electronics Show.

There, instead of discussing consumer electronics, they got to fight over a service, AT&T Wireless's (T - Get Report)  "sponsored data" program

The idea is that, instead of charging users for receiving data, AT&T will charge the people pushing the data. For example, video services can pay AT&T to give you a price break on watching a movie. App companies can pay to let you use their apps for free.

It's not so much that you're having to watch ads in order to get free stuff. You probably do that already. But with sponsored data you get free stuff if companies pay AT&T to make it free for you.

Some analysts, like Om Malik, call this "double-dipping," a dirty deal that will kill start-ups in favor of incumbent services like Facebook (FB). Others, like Scott Cleland, call it no different from any other advertising

Sponsored content is based on "data caps," a limit on how many bits you can download each month, which AT&T and other mobile carriers have been imposing for a few years now. The idea is that AT&T won't count data against the caps if the sender pays to get the data to you.

There's no real cost to AT&T in data caps, other than accounting for them. It doesn't really cost AT&T more to move big hunks of data than small ones. With mobile, we're talking about turning on radios. Once the infrastructure is in place, the cost of turning on a radio is practically nil. And as technology improves, it gets even cheaper.

Now, why should advertisers do this? Data caps pretty much only matter if we're talking about video files. To download things like this column, such caps are irrelevant. And this only involves mobile networks. If I'm using WiFi it's irrelevant. If I'm on a wired connection it's illegal, because the costs of switching carriers is so high.

For now, this also only applies to AT&T. But there's an assumption that the other carriers will follow suit, as airlines did with baggage fees, seeking a new money stream from video and app companies desperate to subsidize consumers' viewing pleasure.

But why shouldn't T-Mobile (TMUS) or Verizon (VZ) or Sprint (S) advertise higher caps to consumers, even unlimited data, and make this irrelevant? This starts to sound like a great reason for me to drop AT&T, not use it.

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