By David Shepardson
WASHINGTON (Reuters) - The U.S. Federal Communications Commission told AT&T Inc <T.N> it has "serious concerns" about whether rivals will be able to compete with its DirecTV Now online video service that will cost $35 a month and demanded answers by Nov. 21.
The FCC wireless telecommunications bureau told AT&T in a letter reviewed Thursday by Reuters that AT&T's DirecTV service and its zero-rated app "may obstruct competition and harm consumers" because it could be too expensive for rivals not affiliated with AT&T to sponsor data programs to compete. The offerings may violate the FCC's 2015 net neutrality rules, the government said.
The online video service will cost $35 per month, including mobile streaming costs, and target viewers who shun pay-television subscriptions, AT&T Chief Executive Randall Stephenson said last month.
The wireless company's streaming video service, which launches late next month, will have more than 100 channels.
Last month, AT&T announced plans to acquire Time Warner Inc for $85.4 billion and some public interest groups are concerned that the combined company could put rival content providers at a disadvantage.
The Time Warner deal gives AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets. Time Warner content will be incorporated into the upcoming video service, Stephenson said.
Bob Quinn, AT&T's senior executive vice president, said in a statement the service of allowing mobile users to watch video without incurring data charges are "incredibly popular services that we hope regulators won't take away from the millions of people who enjoy them today."
He said the program makes it easier for consumers to drop cable - and said it will treat rivals equally. "We welcome any video provider that wishes to sponsor its content in the same 'data free' way for AT&T Mobility customers and we’ll do so on equal terms at our lowest wholesale rates," Quinn said.
The FCC letter from wireless telecommunication bureau chief Jon Wilkins said rival providers would face potential higher costs that DirecTV would not - including "overage fees and or reduced transmission fees" if subscribers exceeded allowances under their plan.
AT&T is betting big on mobile video to tap new revenue as the U.S. wireless market stagnates. AT&T acquired DirecTV for $48.5 billion in 2015, making it the largest U.S. pay-TV operator with 25.3 million video subscribers.
(Reporting by David Shepardson; Editing by Lisa Shumaker, Bernard Orr)