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Charter Asks the FCC to Allow Data Caps

In a move that was probably inevitable, Charter has petitioned the FCC to allow the company to begin implementing broadband data caps. Charter has been prohibited from charging data caps as part of an agreement with the FCC when the agency approved the merger with Time Warner Cable in 2016. Charter is also asking the FCC to lift another provision of the merger agreement that prohibits the company from imposing interconnection fees on Netflix and other companies that generate large amounts of web data.

There was one other requirement of the original merger agreement that the FCC already modified in 2017. Charter had voluntarily agreed to pass 2 million new homes within five years of the merger agreement. The original agreement with the FCC required Charter to compete against other cable companies, but in 2017 that was changed to require Charter to instead pass 2 million new homes.

The merger agreement between the FCC and Charter is in effect until May 2023, but the original deal allowed Charter to ask to be relieved of the obligations after four years, which is the genesis of this request. If granted, the two changes would occur in May 2021.

Charter is asking to lift these restrictions now because the original order allowed them to do so this year. There seems a decent likelihood that the FCC will grant the requests since both Chairman Ajit Pai and Commissioner Michael O’Rielly voted against these merger conditions in 2016 and said the restrictions were too harsh.

What I find interesting is that Charter has been bragging to customers for the last four years about how they are the large ISP that doesn’t impose burdensome data caps on customers. This has likely given them a marketing edge in markets where the company competes against AT&T, which aggressively bills data caps.

Charter has to be jealous of the huge dollars that Comcast and AT&T are receiving from data caps. Back in 2016, there were not many homes that used more data than the 1 terabyte cap that AT&T and Comcast place on customers. However, home broadband usage has exploded, even before the COVID-19 pandemic.

OpenVault reported in early 2018 that the average home used 215 gigabytes of data per month. By the end of 2019, the average home usage had grown to 344 GB monthly. During the pandemic, by the end of March 2020, the average home used 402 GB.

What’s more telling is the percentage of homes that now use a terabyte of data per month. According to OpenVault, that’s now more than 10% of homes – including nearly 2% of homes that use more than 2 terabytes. Just a few years ago only a tiny percentage of homes used a terabyte per month of data. Charter has undoubtedly been measuring customer usage and knows the revenue potential from imposing data caps similar to Comcast or AT&T. If Charter can charge $25 for exceeding the data caps, with their 27 million customers the data caps would increase revenues by over $800 million annually – for usage they are already carrying on their network. Charter, like all of the big ISPs, crowed loudly that their networks were able to easily handle the increase in traffic due to the pandemic. But that’s not going to stop them from milking more money out of their biggest data users.

The US already has some of the most expensive broadband in the world. The US landline broadband rates are twice the rates in Europe and the Far East. The US cellular data rates rival the rates in the most expensive remote countries in the world. Data caps imposed by landline and cellular ISPs add huge amounts of margin straight to the bottom lines of the big ISPs and wireless carriers.

What saddest about all of this is that there is no regulation of ISPs and they free to charge whatever they want for broadband. Even in markets where we see a cable company facing competition with fiber from one of the telcos, there is seemingly no competition on price. Verizon, AT&T, and CenturyLink fiber cost roughly the same in most markets as broadband from cable companies, and the duopoly players in such markets gladly split the customers and the profits for the benefit of both companies.

I’ve written several blogs arguing against data caps and I won’t repeat the whole argument. The bottom line is that it doesn’t cost a big ISP more than a few pennies extra to provide service to a customer that uses a terabyte per month at home compared to a home that uses half that. Data cap revenue goes straight to the bottom line of the big ISPs. For anybody that doesn’t believe that, watch the profits at Charter before and after the day when they introduce data caps.