The Problem with Data Caps

comcast-truck-cmcsa-cmcsk_largeI have been thinking a lot more about the Comcast 300 gigabit per month data cap. It’s now under trial in a few markets, but everybody expects it to be rolled out everywhere. I think this cap is going to do huge damage to the way we use the Internet.

I certainly am among those who have seen these data caps coming. Broadband penetration rates are now north of 80% of households nationwide and higher than that in many metropolitan areas. The largest cable companies are still adding new data customers at a decent pace – the latest statistics show that the largest ones are still growing at over 5% per year in new customers. Some of these new customers are people who are finally getting broadband for the first time and the rest are from the continued poaching of slow DSL customers.

But that customer growth has to stop or slow way down in the near future because the cable companies are starting to own most of the data market. And since these companies are all publicly traded, they want continuous growth in their bottom line. Since margins continue to shrink on cable TV, this means that all of the margin growth at a big cable company must come from their data products. Growing data revenues either means instituting across-the-board rate increases on data or introducing something like the data caps. I am sure we are going to see some of each. Certainly after they get their boost from the data caps, then in a few years their only way to improve bottom line will to be raise all data rates every year in the same manner they currently raise cable rates.

I see a number of specific problems with the proposed Comcast data cap. First, it’s too low. I am not totally against very large data caps because there are always a tiny percentage of customers that download massive amounts of data. And so I don’t have a problem if a cable company wants to charge somebody who downloads multiple terabits of data per month. Other than using their service to run some kind of business, it’s hard to imagine how somebody today can use something like 5 terabits month after month.

But the Comcast data cap is not set to catch the few really huge data users. Years ago Comcast trialed a data cap at 250 gigabits per month. At that time, before the widespread adoption of Netflix and web video that cap probably only affected a small percentage of customers each month. But the web statistics I see show that household usage of data has doubled every three years since the advent of the web. And so if a company is going to have a data cap aimed at charging more only to the very largest users, that cap should be grown every year. For instance, if 250 gigabits per month was a good cap 5 years ago, then the equivalent cap today would be 800 gigabits and five years from now would be 2.5 terabits. Those three limits would affect roughly the same number of households.

But Comcast is starting with a low data cap and will probably only raise it begrudgingly. To put the Comcast data cap into perspective, a household that uses streaming video for about 4 hours per day will hit this cap. This calculation assumes that they are also doing other things like web browsing, backing up pictures into the clouds, using social media, offloading cellphone data, etc. If there are three or more users in a home that is a ridiculously low cap. Remember that video usage doesn’t just come from watching Netflix. All of those little videos that autoplay as you scroll through Facebook or look at web pages with video ads also are streaming video to you.

So Comcast obviously is not out to charge more to only very large users, but to anybody that actually uses the Internet to watch video. This will nail cord cutters the most, but statistics show that even many homes with a cable package are streaming 3 – 4 hours per day of OTT video. And a few years from now this cap is going to catch the majority of households if the cap doesn’t grow each year.

Comcast is talking about charging something like $30 extra to buy unlimited usage, something I thought I was already buying. For my household this will raise the cost of my 50 Mbps data product from $50 to $85. I can afford to pay this, but a lot of households will not be able to afford it. And so we are going to quickly be back to the days when a household has to closely monitor web usage and curtail family members from using the web in the way they want. And this is going to mean stifling the use of OTT video – the competitors of Comcast.

When you consider that for all practical purposes in most markets the cable company is effectively a monopoly, then data caps are clearly anti-competitive behavior meant to stifle their competition. And when you consider that Comcast wants to introduce its own OTT product, Stream TV, that would live outside the data caps, I see massive antitrust problems here. Expect to see my complaining loudly and often about data caps if they move from a trial to become a regular part of the pricing structure for cable modems.

One thought on “The Problem with Data Caps

  1. Dear Doug:
    Some very good food for thought in this thesis… As you can imagine, I have a couple of points on this —

    If I am getting throttled, or “clutched” (my term…), because of the actual data that I actively use, that would be one issue… and I guess I could understand that… This type of use might include streaming video (such as Netflix or YouTube), or other websites that actively use fast/large amounts of data, etc.
    If, on the other hand, I am getting clutched because of all the ads and streaming garbage that come across when I point and click, well, now we have a problem. That is not my “active use” data, that is the content provider’s or the ISP’s. And in a sense, I should not have to “pay” for, or suffer because of, their advertising and marketing.

    “Building… by press release” has always been the push of first resort… When PEPCO, in the WDC area, wanted to improve its abysmal record of reliability, the first thing they did was institute a marketing campaign… Verizon still markets its new and improved FiOS service, despite the fact that, apparently, it is no longer expanding its network. Back in the go-go days of the new cellular marketplace, I proffered that if you added up all of the claimed marketshare, it would add up to 200%!!

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