The bundling of Internet content has begun and its about to get worse

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Last year we won the open internet back, but the new regulations had one big weakness: they didn’t explicitly ban a scheme called “zero rating.” Zero rating is a poison pill wrapped in a piece of cheese; it looks like a good thing for consumers (free video!), but ultimately has the capability to rot competition and the open internet. The FCC decided it would look at zero rating schemes on a case-by-case basis, which left the door open for wireless companies to play their usual games. AT&T just broke that door off its hinges.

Last night AT&T made a dim prophecy official by announcing that its new DirecTV Now streaming service would be zero rated: it won’t count against its customers’ data caps. Zero rating isn’t new — T-Mobile has been writing the manual on how to get away with it — but now it’s finally happening at a scale that matters. And AT&T’s version is much worse than T-Mobile’s.

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But AT&T’s zero rating model is pretty much the nightmare scenario that internet advocates and pro-competition observers have been warning us about. That’s because AT&T owns DirecTV, and is now giving DirecTV Now privileged access to AT&T’s wireless internet customers. The corruption is so obvious here that it doesn’t need a fancy net neutrality metaphor — AT&T is clearly favoring a company it now owns over competitors.

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And that’s just the beginning of where AT&T is screwing us. The company stands to reap massive tolls on the other end of that “most favored nation” deal with DirecTV, because it also offers something called “sponsored data” to other companies that want the same kind of privileged access to AT&T customers. So, for example, if Netflix wants to compete fairly with DirecTV, it would need to pay AT&T to exempt its video traffic from data caps.

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They’re using the same playbook: turn the internet into basic cable, and charge everyone for features and content on top of that. Then, charge competitors to compete with their own vertically integrated video services. It’s a two-way toll that ISPs have been trying to erect forever.

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The stakes are even higher now that AT&T plans to buy Time Warner: the company that owns Game of Thrones and Batman. Will AT&T make HBO free to stream only for AT&T customers in the future? Will AT&T have to pay Verizon to sponsor HBO data for its customers, or will Verizon capitulate and offer HBO data for free to remain competitive? These are the kinds of byzantine deals that an open internet is designed to avoid. The core principle of net neutrality is that you should be deciding who wins and loses in the market for information, not the phone company.

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