A few weeks ago Mediacom sent a letter to the FCC as part of Docket 16-245 that defended data rate caps. The letter was signed by Joseph E. Young, the Senior Vice President, General Counsel, and Secretary of the company.
Mr. Young lays forth probably the best argument for data caps I have seen. This is from his letter:
Imagine you are out for a walk and experience a sudden, irresistible craving for Oreo® cookies. You only want to spend two dollars, which means that you will be able to buy a two-pack or maybe even a four-pack but for sure you cannot get the family size of over 40 cookies. For that many, you have to spend more. Of course, it would be nice if your two dollars bought you the right to eat an unlimited number of cookies, but you know that is not the way our economy works. It is the same for the Starbucks latte you might want to drink with your cookies and for socks, gasoline and just about every single one of the thousands of other products and services that are for sale in the United States, including essentials like water and electricity.
In the case of virtually everything you buy, the fact that your cost goes up as you consume more will neither surprise you nor set you off on a passionate crusade to get the government to force producers to sell an unlimited quantity at a fixed price. We all know this to be the way things work in our economy and understand at some level that there are valid reasons for why that is so. . . . Remarkably, the only exception to this truism we can think of is bandwidth.
He goes on to say that what ISPs are doing is not greed, but just trying to put broadband on the same basis as other products. He laments that ISPs are thought of as greedy when trying to price their product like everything else in the economy. You have to admit that at least on the surface this sounds reasonable.
However his argument lost a little steam when he went on to say that, “A fair number of otherwise intelligent people vociferously complain about ISPs imposing a “cap” on bandwidth usage.” He basically called everyone who is against data caps stupid, and this probably won’t go well at the FCC, where a lot of staff are against data caps.
But to counter the Mediacom argument you only have to look back to see how Comcast implemented their data caps earlier this year to see how data caps are really just all about greed and greater revenues. Comcast had a data cap of 250 GB for many years, although it was rarely enforced. The company raised the cap to 300 GB and then starting enforcing it in various trials around the country. They offered two options to customers that exceeded the cap: either pay $30 more per month to get unlimited data or else pay $10 for every 50 GB over the cap.
Both of those options increased revenues for Comcast significantly. And that’s where the greed came to bear. If this was not about making more money Comcast could have implemented data caps with a rate rebalancing. As an example, they could have lowered all data plan rates by $10, so that people who don’t use a lot of data would save money. Only customers who exceeded the caps would pay more. If the rate rebalancing was done right, then Comcast would keep the same revenues as before and customers would be paying more in line with their usage. To use Mr. Young’s analogy, if Comcast wanted to get prices right they should have started out by first right-pricing the small pack of Oreos. Instead Comcast was satisfied that the small pack of Oreos cost as much as the large pack, and they then jacked up the price of the large pack.
This was clearly a money-making scheme for Comcast, and the public outcry was so big that it got a lot of attention from the FCC. Comcast backed down and unilaterally raised the data cap on most plans to one terabyte. But new last week show that they want to impose the same pricing scheme on the 1 terabyte limit. This won’t affect many users today, but within a decade it will affect a significant percentage of Comcast’s users.
If Comcast had rebalanced rates they would have been lauded instead of vilified. While those that paid more might be yelling, the millions who paying less would largely offset that. But instead Comcast went straight for the money grab and to their chagrin, everybody was watching.
The other thing that Comcast missed is that, for most products we buy, the prices charged have some semblance to their costs. It certainly costs more to make a big pack of Oreos than a small one. But the public gets upset when prices greatly exceed costs – just look at the recent outcry about the EpiPen. Comcast’s big problem is that the public understands that there is very little difference in cost between most Internet users. Yes, those who use huge amounts of data cost an ISP more money, but there is very little difference in cost to Comcast between a household using 200 GB and one using 500 GB in a month. There is no gigabyte spigot at Comcast that is equivalent to a gas pump that would justify a big price differential between these two households. There would have been a lot less public outrage had the overage charges been $5 rather than $30.
As a big user I am obviously not nuts about the idea of paying more for broadband. But I wouldn’t have great qualms if a rate rebalancing brought very cheap prices to my mother (who barely uses any bandwidth) while I am charged more. But that’s not what we are seeing with price caps in the market. Instead we have low bandwidth products that are overpriced and the ISPs wanting to charge even more to somebody who actually uses what they have purchased.