Understanding AT&T’s Zero-Rating Strategy

AT&T (T) launched its DirecTV Now streaming service on November 28, 2016. According to AT&T, DirecTV Now content will be zero-rated for AT&T Wireless customers. This means to say that AT&T won’t charge its own wireless subscribers for consuming data for its DirecTV Now service.

This practice of zero-rating data is similar to what T-Mobile (TMUS) and Verizon (VZ) are doing with their respective Binge On and go90 over-the-top (or OTT) platforms. However, the FCC (Federal Communications Commission) began examining zero-rating to see if some or all of its varieties might violate net neutrality.

DirecTV Now  is a video streaming service that delivers pay-TV content directly to subscribers over the Internet rather than signing them up for cable or satellite connections. Binge On is a zero-rated—or free—data-usage option that provides streaming on video resolution of 480 pixels or more.

According to T-Mobile, there are more than 100 video service providers on Binge On. Some of these services include Google’s (GOOG) YouTube, Netflix (NFLX), Verizon’s go90, AT&T’s DirecTV, and Amazon (AMZN) Video.

AT&T’s OTT DirecTV Now video streaming service has huge growth potential. Users have been subscribing to OTT services in greater numbers than ever before, mainly due to the high monthly bills that customers are paying for cable and satellite TV.

A 2Q16 report from Digitalsmiths suggests that about 35% of users pay more than $100 every month to their pay-TV providers. Currently, the major players in the video streaming market are Netflix, DishTV’s (DISH) Sling TV, and Sony’s (SNE) PlayStation Vue.