AT&T announced three days ago that it would start charging content providers for the right to bypass data caps that might otherwise prevent smartphone owners from using data-hungry services like streaming video or music.

The plan is opposed by those who say it violates the principles of net neutrality, that Internet service providers should treat all data equally, and that AT&T shouldn't pick winners and losers by forcing content providers to pay for the best path to consumers.

AT&T's plan is very likely legal, however. For one thing, the Federal Communication Commission's Open Internet Order, which lays out the country's net neutrality rules, places fewer restrictions on wireless Internet (your cell phone provider) than wired (your cable and/or other home Internet service).

The Open Internet Order's laissez-faire approach to wireless made it likely that AT&T's Sponsored Data would come to cellular networks before home broadband. However, the order may not prevent AT&T's strategy from being used in wired Internet.

The order says that fixed broadband providers may not "unreasonably discriminate" against any type of traffic and that pay-for-play arrangements are potentially violations.

"[B]roadband providers that sought to offer pay-for-priority services would have an incentive to limit the quality of service provided to non-prioritized traffic," the rules state. "For a number of reasons... a commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the broadband Internet access service connection to a subscriber of the broadband provider (i.e. 'pay for priority') would raise significant cause for concern. ... [A]s a general matter, it is unlikely that pay for priority would satisfy the 'no unreasonable discrimination' standard."

FCC “punted on data caps”

While the order is generally understood to prevent ISPs from demanding payments for a faster path to consumers, it doesn't explicitly prevent them from using pay-for-play to let content providers serve up video and other data without counting against consumers' data limits. AT&T was careful to note that "Sponsored Data will be delivered at the same speed and performance as any non-Sponsored Data content."

"While the Open Internet Order itself talks a lot about two-sided markets, it kind of punted on data caps themselves," Michael Weinberg, VP at consumer advocacy group Public Knowledge, told Ars.

The 2010 order "punted" in part by creating an Open Internet Advisory Committee (OIAC) to examine unresolved questions. That committee released a report in August 2013 on policy issues related to data caps and usage-based pricing.

The report "basically concluded that they and the FCC know nothing about data caps, so they were unable to make any meaningful policy recommendations," Weinberg wrote in an e-mail. "So the real answer is that no one is really sure. One could potentially make an argument that non-exempt services were actually being blocked under a data cap (if I hit my cap and the service I want to reach hasn't paid for an exemption, I might not be able to reach it at all), but that would really come down to specifics that may or may not exist here. If the FCC knew how data caps fit into the Open Internet Order, it wouldn't have asked the OIAC to look at it, and if the OIAC knew, it would have given some indication of that it its report. In the absence of that, all we have is Open Internet Order language highlighting all of the problems that two-sided markets create and a pair of dice to roll. Which is not necessarily ideal."

AT&T hasn't revealed anything about whether it plans to bring Sponsored Data to its home Internet service. Doing so might bring a lawsuit, but the company has plenty of money for lawyers—and the lack of specifics in the Open Internet Order could make it likely that they'd win. While Weinberg noted that one could argue "that non-exempt services were actually being blocked under a data cap" when someone hits their limit, AT&T could correctly point out that consumers can simply pay for more data after reaching their limit.

TechFreedom, a libertarian think tank, agrees that the Open Internet Order is vague on the question of whether AT&T's Sponsored Data or similar approaches would be legal in home broadband.

"It's not entirely clear how the Open Internet Order's non-discrimination rule would apply to Sponsored Data," TechFreedom President Berin Szoka told Ars. "[FCC Chairman] Tom Wheeler certainly seemed, at least in his recent off-the-cuff remarks, to think that two-sided markets aren't inconsistent with Net Neutrality."

Wheeler’s comments haven’t settled the matter

Szoka is right about Wheeler's comments. As we reported last month, Wheeler said he wouldn't automatically object to companies like Netflix paying ISPs for a faster path to consumers. “I think we’re also going to see a two-sided market where Netflix might say, ‘well, I’ll pay in order to make sure that you might receive—my subscriber receives—the best possible transmission of this movie,'" Wheeler said. "I think we want to let those kinds of things evolve. We want to observe what happens from that, and we want to make decisions accordingly, but I go back to the fact that the marketplace is where these decisions ought to be made, and the functionality of a competitive marketplace dictates the degree of regulation."

In new remarks yesterday at the Consumer Electronics Show, Wheeler left the FCC's position on AT&T's Sponsored Data an open question. "My attitude is, let's take a look at what this is," Wheeler said, according to the Washington Post. "Let's take a look at how it operates... If it interferes with the operation of the Internet... if it develops into an anti-competitive practice... if it does have some kind of preferential treatment given somewhere, then that is cause for us to intervene."

Post writer Brian Fung noted that "Wheeler's comments don't do much to clarify his cryptic positions on network neutrality."

In another speech delivered today at the Computer History Museum in Mountain View, California, Wheeler said, "It may well be that the kind of offering AT&T has announced enables increased competition and increased efficiency—both things that benefit consumers. It is not the sort of thing that should be prohibited out of hand."

US Rep. Anna Eshoo (D-CA) blasted AT&T's Sponsored Data program, saying it puts AT&T "in the business of picking winners and losers on the Internet, threatening the open Internet, competition, and consumer choice. It’s exactly why net neutrality rules came to exist in the first place and why these rules should apply equally to all forms of broadband Internet service."

Eshoo didn't give any indication of whether she plans to file legislation to make the practice illegal. An Eshoo spokesperson did not answer our question on that topic.

Public Knowledge called on Wheeler to "open an inquiry to examine the ways that these types of schemes impact an open Internet" and said that "a pay-for-play model for companies to reach subscribers won't help innovation, will surely stifle new entrants, and has no upside for consumers." The group, however, noted that it previously called on the FCC to investigate the impact of data caps more than two years ago without any result.

If anything, our net neutrality rules are more likely to become less restrictive than more restrictive. Verizon filed a lawsuit claiming the entire Open Internet Order is invalid, and observers of the case believe the US Court of Appeals for the District of Columbia Circuit is likely to strike down portions of the law. A ruling could come at any time.

"[T]o the extent the DC Circuit interprets the non-discrimination rule to even potentially bar arrangements like this [AT&T Sponsored Data], the court seems highly likely to strike down either that rule or the entire order as an illegal imposition of common carriage regulation," Szoka told Ars. "If the Court doesn't clearly reject the FCC's statutory authority claims, it might leave the FCC free to try again with new rules that would allow things like Sponsored Content but require that (as the FCC did with data roaming) the terms offered be reasonable and non-discriminatory."

Both opponents and supporters of network neutrality came to the same conclusion after the Court of Appeals hearing, that the judges are skeptical about the FCC's arguments supporting the Open Internet Order. Combined with Wheeler's endorsement of two-sided markets, it looks like ISPs and wireless carriers will have plenty of opportunity to make money both from individual consumers and the content companies trying to reach them.