AT&T just announced that they will be introducing an option for U-verse broadband customers to get unlimited broadband from any of their plans for an additional $30 per month. Along with this announcement AT&T is also increasing the data caps on existing products. For example, some plans will be increased from 250 Gb per month in total download to either 400 Gb or 600 Gb. And the current 500 Gb cap will be raised to 1 Tb.
This is very similar to the Comcast data cap plan where customers can pay $30 or $35 to get unlimited data usage for customers that exceed their 300 Gb cap. Comcast also lets customers buy additional 50 Gb blocks for $10.
What I find amazing about both of these concepts is that both companies are marketing this as if they are giving people something. What they are really doing, especially for Comcast, is punishing people who dare to drop their cable TV product and instead get video over the Internet.
For anybody who actually uses the data that they pay for each month both of these plans are nothing more than a $30 rate increase. There is no cost justification for such a gigantic overage charge. Most of my clients (who are very tiny companies compared to Comcast and AT&T) only pay a few bucks per month average for the raw bandwidth to the Internet for their broadband customers. It’s hard to think that the cost for these giant companies isn’t under $1 per month on average. Customers that exceed these caps might, at most, cost these companies an extra dollar – and that is probably too high of an estimate.
I’ve been predicting for several years that data caps were coming and that caps already in place were going to start getting enforced. While the cable companies added 3.3 million new broadband customers for 2015, they don’t have to look at too far into the future to see a time when everybody that can afford broadband will have it. The market is starting to approach the saturation equilibrium point. And they are also seeing a nibbling away of customers by fiber providers like Google, CenturyLink and municipalities.
Meanwhile, just about everybody in the cable business is seeing a drop in revenues as people either cut the cord or else downsize their packages. And that trend is only going to accelerate with skinny bundles from the cable providers and a host of OTT option as an alternative to traditional cable.
If you are a publicly traded company like AT&T or Comcast there is tremendous pressure to always grow revenues quarter over quarter and year over year. But at a time when the broadband customers are going to top out and when cable and telephone are in a decline, these companies have few options for new revenues other than from broadband rates. That is the main function of the data caps – the big ISPs are gouging their biggest data users first, with the full knowledge that every year more and more people are going to creep over the data cap threshold.
The AT&T announcement also speaks to duopoly competition. Any community that thought they might see some renewed competition between Comcast and AT&T now knows for sure that that isn’t going to happen. These companies are not competing with prices against each other – they are doing the opposite and matching each other in the ways they will increase prices and revenues. That can only happen in a monopoly or duopoly.
This is only the first step in data price increases and I think we are now going to soon start seeing all broadband prices increase every year from these providers, in the same manner that we are used to cable rate increases. It’s their only real option to keep making the money that Wall Street expects from them.