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What Is Sponsored Data, and Why Are AT&T and Verizon Testing It?

By Daniel B. Kline - Jan 12, 2016 at 2:00PM

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It's a rare thing that may help the wireless carriers while also benefiting their customers.

It's a real victory for wireless providers, including AT&T (T 1.27%) and Verizon (VZ 0.83%), when they can persuade someone other than their subscribers to pay for something those users want.

Called "sponsored content," what happens is that content owners pay the wireless companies so that using their service doesn't count against a user's data cap. In the case of subscription services, doing this makes their product more attractive to users, who will be able to get more use out of what they're paying for without incurring data overages.

For consumers, the victory is obvious. Of course, like anything involving AT&T and Verizon, sponsored content isn't always a positive for subscribers, because it can also be used to deliver ads. That might benefit the carriers, which get money, while the companies get advertising, but few, if any, wireless customers have ever wished for more commercials on their phones.

But despite the potential abuse or misuse of the technology, sponsored content does have an upside for all parties involved, and both AT&T and Verizon are testing it.

How does sponsored content work?
In a lot of ways, it's like what an 800 number used to be (and still is for people with old-fashioned phone plans). The use of toll-free numbers allowed companies to have consumers call them for free when it benefited them. This approach worked great for ordering products, and infomercials still tout toll-free calls, even though long-distance and tolls have become something a diminishing percentage of Americans are affected by each year.

Verizon may also offer a version of its Go90 video service that doesn't count against its subscriber's data caps. Source: Verizon.

In a wireless setting, sponsored content would allow broad or very specific content to not count against data caps.

"The capabilities we've built allow us to break down any byte that is carried across our network and have all or a portion of that sponsored," Verizon Executive VP Marni Walden told Re/Code.

This approach could work a number of ways, which would be quasi-advertising that consumers might like. For example, a record label might pay to make new singles by its artists available without counting against data limits, or a movie company could do the same with film trailers. It could also be done on a broader level, where a broadcast or cable network makes an episode of a show available or even pays to give consumers broad access to its full digital feed.

Is this good for consumers?
It's easy to see the potential for misuse, but it still involves having the wireless customer make a choice. A person might opt to watch movie trailers or music videos he or she has only limited interest in because that person is up against a data cap -- but would the person watch toothpaste ads?

The potential here is very strong for companies to use sponsored content as a way to encourage sampling. That approach will work only if they offer content consumers have at least some interest in. This practice could give people more "free" choices to watch on their wireless devices without running up their data totals.

Is this good for everyone?
The wireless industry makes money, advertisers reach more people, and consumers get more content with no data charge. That seems like a win for everyone involved.

Of course, the big winners are AT&T and Verizon. They get an improved offering for their subscribers, delivered in a way people will like, and they get paid for it. The big two carriers can sell this as doing something positive for subscribers, and it's hard to to argue that it isn't.

Daniel Kline has no position in any stocks mentioned. He finds the Go90 commercials awful and expects the service to fail. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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AT&T Inc. Stock Quote
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