AT&T could find itself in hot water if the issue recently raised by the Federal Communications Commission is not resolved. In a letter dated Nov. 9, the FCC expressed serious concerns that the carrier could be violating net neutrality rules for AT&T's Mobility Sponsored Data program, which offers free data for DirecTV video streams.

DirecTV Zero-Rating Strategy And Net Neutrality

AT&T's Sponsored Data program is known in the industry as zero-rating strategy. Other companies are also adopting it such as T-Mobile's free data for music and movies and Verizon's own zero-rating package for its Go90 app.

FCC has not barred zero-rating per se, although it is still generally viewed to have implications on net neutrality. In the letter obtained by Ars Technica, the agency indicated that it is even preferable because it provides consumer and competitive benefits.

The Sponsored Data program, therefore, would have been perfectly fine except for the fact that AT&T also owns DirecTV. The federal regulatory agency is, therefore, concerned that it could involve unfair advantage, capable of marginalizing AT&T and DirecTV's competitors.

AT&T's Defense

AT&T's counter argument seems to rest on the claim that the Sponsored Data is on equal footing with third parties who chose to participate in the program. Therefore, the carrier claims, it is nondiscriminatory.

The FCC, however, stated that considering DirecTV as a third party is not valid because AT&T is its owner. It cited unaffilliated video providers who must pay actual cash cost whereas DirecTV is merely paying a token cost because what it pays can be translated into AT&T Sponsored Data revenue.

The FCC also noted that because of the Sponsored Program, DirecTV is also able to offer very low prices, which is also unfair to its competitors.

FCC has asked AT&T to officially respond to its letter. It is not yet clear whether the carrier has already complied. But in a Wall Street Journal report, the company seems to be digging its heels in.

"We welcome any video provider that wishes to sponsor its content in the same 'data free' way," Robert Quinn, head of external and legislative affairs at AT&T, said. "We'll do so on equal terms at our lowest wholesale rates."

FCC Penalty

The FCC can impose penalties to companies violating the net neutrality rule. In June 2015, for example, AT&T has already been slapped with a $100 million penalty along with other compliance obligations for failing to adhere to the net neutrality transparency rule after adopting its Maximum Bit Rate policy.