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Are Data Caps Bad, Or Are They Justifiable?

Analyst: There are valid reasons for data caps

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How do you feel about data caps? I think it’s safe to assume that most people aren’t in favor of them, which is why many public interest groups are speaking out against them. Several of these groups have reached out to lawmakers and the FCC asking that they investigate data caps.

In a letter to Congress, Public Knowledge, Free Press, Consumers Union, and New America Foundation wrote:

Data caps do have a very real impact on consumer behavior. Data caps dampen the use of broadband generally and discourage high-bandwidth applications, like online video, specifically. This dynamic has been illustrated in letters submitted to the Federal Communications Commission last year by public interest groups [including signatories to his letter].1

If data caps had a legitimate economic justification, they might be just a necessary annoyance. But they do not have such a justification. Arbitrary caps and limits are imposed by multichannel video providers that also provide broadband Internet access, because the providers have a strong incentive and ability to protect their legacy, linear video distribution models from emerging online video competition.

Do data caps cause harm to you? Why or why not? We’d love to hear your perspective.

These issues have gained a lot of attention lately after several companies have raised concerns regarding the negative impact that data caps have on them. Netflix recently lashed out at Comcast over the cable giant’s announcement to not count the television programming users access through its Xfinity video streaming service against their 250-gigabyte monthly data cap. Reed Hastings, Netflix’s CEO, believes that Comcast isn’t following the FCC’s Open Internet Order and took to Facebook to voice his distaste for the company’s latest move:

Comcast no longer following net neutrality principles.

Comcast should apply caps equally, or not at all.

I spent the weekend enjoying four good internet video apps on my Xbox: Netflix, HBO GO, Xfinity, and Hulu.

When I watch video on my Xbox from three of these four apps, it counts against my Comcast internet cap. When I watch through Comcast’s Xfinity app, however, it does not count against my Comcast internet cap.

For example, if I watch last night’s SNL episode on my Xbox through the Hulu app, it eats up about one gigabyte of my cap, but if I watch that same episode through the Xfinity Xbox app, it doesn’t use up my cap at all.

The same device, the same IP address, the same wifi, the same internet connection, but totally different cap treatment.

In what way is this neutral?

Although Larry Downes, a senior adjunct fellow at Tech Freedom, would prefer not to have data caps, he told us that they do not fall under net neutrality concerns. As he explained, net neutrality is being misrepresented in this case and, therefore, takes the focus off of the real issues.

“The advocates believe any new service that is not really clear from a competitor’s standpoint… they kind of like to just paste it with the phrase net neutrality,” said Downes.

“It’s extremely misleading and very unhelpful to try to figure out what is best for customers if we just kind of paste everything with net neutrality,” he added.

Amazon is another company that is sounding alarm over data caps, and it expressed its concerns in a Senate Commerce Committee hearing on online video. Based on numerous reports, Sony is also halting plans to move forward with its own video streaming service until the FCC weighs in on Comcast’s Xfinity decision.

Just yesterday, Senator Al Franken sent a letter to the FCC vocalizing his concern over Comcast’s behavior as well. He is urging the commission to take action against cable company.

Eli Dourado, Research Fellow at the Mercatus Center at George Mason University There is, however, the other side of this debate that believes data caps are necessary and even justifiable. Eli Dourado, a research fellow at the Mercatus Center at George Mason University, is among this group. He spoke with us and explained that, even though he is a paid subscriber to three different online video services, he still thinks that data caps serve a significant purpose.

According to him, the first reason Internet service providers have data caps is for pricing incentives. In other words, if ISPs had one flat rate and no data cap, they would have to charge a lot more for their services. With caps, Dourado explains that ISPs can offer options to consumers, thus better meeting needs.

For example, ordinary consumers pay a lower cost for their services but have a data cap. Businesses, on the other hand, pay more but have no cap. Consumers are also able to pay more to not have a cap, if they wish.

The second reason Dourado thinks data caps are necessary is to help alleviate congestion. Everyone knows that when too many people are using the same bandwidth, the service slows way down. If data caps didn’t exist, more than likely, ISPs would have a metering plan in which users would pay bit-by-bit. Most consumers, however, would prefer to pay a flat rate, even if it’s more, in order to make their accounting easier.

“They’re [consumers are] willing to pay more and to have a flat rate than to pay less and have a metered rate,” said Dourado.

Thirdly, he believes data caps are justifiable to ISPs for copyright reasons. As SOPA and PIPA demonstrated, the entertainment industry is very concerned with copyright violations. Without data caps, Dourado told us that there would be “a lot more filtering and a lot more government control over content on the Internet.” This, in turn, could lead to ISPs being forced into a “copyright police” position. Dourado also mentioned that the chances of a SOPA passing could be more realistic without caps.

“If not something exactly like SOPA, something equally bad or worse could happen if there were no data caps,” he said.

Dourado went on to say that he too doesn’t think data caps are an issue of net neutrality. According to him, caps are important given the current economy and cable infrastructure.

“Everybody wants a neutral Internet… but, it’s totally different when you get into the actual economics of network industries of building out this infrastructure… it’s not always easy to provide neutrality,” said Dourado.

“Somebody has to pay for the pipes,” he continued, “and the most efficient way to have people pay for them is to pay a share of the fixed costs, and then a share of the marginal costs.”

Furthermore, Dourado told us that he has never gone past his cap even with his three online services. As a result, he doesn’t think that excess usage is very common.

“If you’re a normal Internet user and you browse the Web and use email and watch some YouTube videos here and there, you’re not gonna get anywhere near the cap,” he said.

He went on to say that, for those users who are afraid they will go over their limit, the consequence is essentially an “idle threat.” He said most ISPs simply send a letter of notification, and beyond that, nothing really happens.

“If enough consumers just say…. ‘We’re gonna use this and we’re gonna go to our cap or even succeed it,’ I think that the Internet service providers will have to accommodate them,” said Dourado.

As for mobile data caps, Dourado told us that they are even more important than those imposed by ISPs since mobile networks contain a much higher volume of congestion. In other words, the days of unlimited data plans are a long way from coming back.

Although there isn’t an investigation open to examine data caps at this time, Dourado said the groups that oppose them are very effective at getting their message out. In the long run, however, he is optimistic that the government will not intervene.

Do you think the government should step in regarding data caps? Please share your thoughts.

Are Data Caps Bad, Or Are They Justifiable?
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  • Jake

    Really don’t like the data caps and won’t use the internet on a mobile device because of them. Advertisement sucker a lot of people into using up that data quickly though. “Watch movies, upload videos, view favorite youtube videos while waiting in line, taking the bus, on a break, etc etc. All comes down to the providers making more money. Am sure these companies would still be making money hand over fist with no data caps. Greed is what keeps the wheels turning though.

  • http://www.webpronews.com/author/chris-richardson Chris Richardson

    “Somebody has to pay for the pipes,” he continued, “and the most efficient way to have people pay for them is to pay a share of the fixed costs, and then a share of the marginal costs.”

    The most efficient or business as usual? Sure, expenses get passed onto the consumer in every industry, but that doesn’t excuse AT&T, Verizon, et al from not having the necessary infrastructure to support their users.

    • Loony Toony

      Agreed, they shouldn’t be allowed to oversell their services either or misrepresent their product in such a way that they provide the wrong package per cap.

  • Jasjot

    Data caps are utter nuisance. They should be removed, so that users can unlock the full potential of their internet connections

    • Ryan Kempf

      I agree completely

  • http://www.coolmonsblog.com Coolmons Blog

    If a provider advertises unlimited data, they should take that into consideration before setting a price and advertising the service.

  • Mark

    I agree and disagree with Eli Dourado – not quite sure what he is reseraching – if we are uncapped (single charge to everyone no matter what they use) then this is fair – although it will obviously incentivise people to use bandwidth that they might not necessarily need – in a capped environment I have just 1 question – if I was say on a 150GB “plan” but didn’t use the full 150GB then I will in fact have paid for “nothing” for part of that quota. In the real world the unused portion is not rolled over as it should be (as I’ve “paid” for it)and is “expired” – how businesses justify this I do not know but I think governments should intervene to stop this practise as it is tantamount to theft – getting people to pay for something that when unused (for which they paid)is “expired” by the provider?

  • http://www.northcountyluxuryhomes.com San Diego Realtor

    Data Caps absolutely impact my business. Increasingly consumers are shopping for homes online and every month I see an increase in the number of hits to my companies website via smart phones and iPads. Many of these consumers are sitting right in front of the home downloading the interior photos, virtual tours, and than calling the agents who provide this information to them. If they can not access the data than we don’t get the calls.

  • http://www.gurusonwheels.com Brian

    Data Caps are just another way for Large Business to bully customers into spending more money …

    they do this because of there failing business practices .

    in the end . the one that allows unlimited will trump .

  • http://evrn.net/ Howard Crane

    PRAISE THE LORD!

    A reputable media outlet is bringing up this issue. I wasn’t even aware there was a movement based on it.

    Data caps aren’t The Internet, that’s a THIRD PARTY selling other peoples’ content to you per KB.

  • http://www.ddmcd.com Dennis D. McDonald

    I would take this article seriously if there were any real data to back up the hypotheticals discussed by Dourado.

    Why don’t we ask AT&T, Verizon, and Comcast, since they are using different pricing schemes with different-behaving groups, actually disclose what is being used by whom and how much it costs to support it vs how much is being paid for it?

    After they refuse to release such data, if they continue to use the arguments put forth by Dourado, we’ll have real proof that something fishy is going on here.

  • Jeff B

    I am amazed that the service providers advertise and tease you in with their fast internet speeds and capabilities of their latest phones and service, yet they don’t want you to use much of it. That’s like BMW telling you how wonderfully fast and agile their latest cars are and then saying “but you can only drive them five miles a day” or we’ll charge you out the wazoo in extra payments. Makes no sense.

  • http://gregthetrainer.com Greg burkett

    Very simply put the government needs to stay out of our lives. It seems that they have the ability to mess up anything they touch.

    • Renaldo

      The scariest words in the English language are: “Hello, I’m from the government and I’m here to help you.”

    • Loony Toony

      Unchecked corporatism and capitalism is just as scary. Unchecked corporatism allowed companies to collude on pricing like what happened with big pharmaceuticals in the past which hurts innovation and competition of offering the best products for the lowest prices instead we get higher fixed prices like what we’re seeing with the collusion on ebooks from Apple, with big book publishers, vs their fight with Amazon who offered it at much lower prices for the same materials in the past. Unchecked capitalism would allow child prostitution and pornography all for the sake of money and profits. Government at times is the lesser of two evils, while what you post is true vs the common individual, it’s not true when compared to a huge corporations whose only interests don’t include the community they’re in, the country parts of the operations do business, nor the people within them. In this case I think the corporations are too anti-competitive with the emerging front on new models of internet businesses, they want to preserve the profit model of their old business, and not innovate or adapt.

  • Spam Exterminator

    I as a consumer can say the cap is ridiculous. I get up 47Mbps yet only have a 7.5Gb cap. I can use 7.5Gb in a day just by watching a couple of movies. It’s like saying, pay us $79/month and enjoy the fastest satellite internet speeds available the only catch is you can’t use it. @ Howard Crane I’m sorry but I have Wild Blue and they are strictly a Satellite Internet Provider. If they have to have caps they should reflect that of which 1 person downloading stuff 24 hours a day would use in a month at their top internet speeds. That way it gives leeway to those who have multiple users on home networking. And there should be a different set of caps for online businesses so they can continue to serve their customers 24/7. Or just get rid of the caps completely.

  • Renaldo

    Obviously, total bandwidth on a network is limited.

    Obviously, there is a “standard” amount of data used by typical web users.

    If a user significantly exceeds the ‘standard’, he should be considered a special case and be charged accordingly.

    ISPs need to be able to forcast how much data their customers will use. Without the ability to cap a user’s data rate, this forcasting becomes difficult to impossible.

    So, data caps are not only ‘justifiable’, but necessary.

    Welcome to the real world.

    • Spam Exterminator

      The satellites they use are in operation 24/7 no exceptions. Yes the providers pay for a certain amount of bandwidth every month. A customer pays for their bandwidth every month but the guessing game on how much a customer should use every month is absurd at best and is in place to make the provider rich. If a customer pays for 47Mbps he should have 47Mbps with only one cap that of which he could use by himself if he was downloading 24/7 for an entire month. The 47Mbps is only at peak operational levels and customers do sleep, so if he has a family and they all use the internet the extra bandwidth will give leeway to the rest of his family being able to use the internet too. Than it becomes extremely unlikely anyone will ever go over their allotted bandwidth. A customer pays for his bandwidth rather the provider uses that money to expand their bandwidth or not, is solely on the providers head if they chooses to pocket your money instead of purchasing the extra bandwidth from the Satellite owners that’s their problem. But instead they pass those issues along to their customers.

      • Renaldo

        So it’s all about money with you, huh? How about expecting people to live up to their agreements instead of being so greedy. Data caps are the only way to police people who would otherwise ruin it for the rest of us. Stop being so greedy; worry about your own money, not about everyone elses’.

        • Loony Toony

          How about the ISPs and mobile providers, when they offered unlimited why are they forced to live to their part of the agreement instead in some cases they enforced the clause “for usage detrimental to the network”? Sorry they set the initial standard and then put the caps in place, you’d have an argument with new users but these caps shouldn’t be in place or throttling used on the older customer base, they rewrote the agreement after offering the service, and they also raise the price time to time too because in many areas there is little to no competition for broadband services. Hold them to the same standard then, tell them to live up to their agreements.

    • Loony Toony

      So what is this “user standard” you’re referring too? What was it back in the 1980s? 1990s? 2010? Now? Things change on the internet constantly due to innovation, companies are going to push cloud services and make it a physical media free society, in fact in the future it may not be possible to buy a cd for music or dvd/bluray for movies, yet who determines these false claims of “standard”? Let’s face it, they simply don’t want to be a dumb pipe service for netflix, amazon vod, hulu, etc and watch people cut the cord on their highly over priced video services, this is what the cap is purely about they simply don’t want to compete on a level playing field otherwise your tv watching with their service should count against the cap too.

      I used to work in the mobile phone business, they used the same crap of “standards” raising the rates of sms till they forced it where even an infrequent user was charged exorbitantly for the few incoming ones where now they force a higher priced package all in the claim of the “average user benefit”. Sms is delivered on network downtime, which means when the towers aren’t being used it delivers at that time. There never was a reason to charge $0.25 per sms, in fact it used so little bandwidth that your prepaid monthly carriers were offering it for free as part of the voice packages for a long time. Yet the major carriers reamed the customers for a long time because they got away with it, same thing about these supposed caps from the ISPs.

  • Pendar

    The dude in the video is a complete turd, piracy isn’t an issue, even with data caps they still tried to push sopa and there still trying to push similar bills. Simply put, companies like youtube, steam, and amazon can be screened and set to unlimited by the cable company and not count towards your data cap, 2nd his biggest turd moment is when he said companies like sony will come out with Internet tv to compete with cable and sat tv, not going to happen with data caps, the turd didn’t even mention that an average family would use approximately 266 gigabytes of data, for Internet TV only, that is the exact reason sony put this project on hold and every other company that want to. As he said the average user, the turd doesn’t even include a whole family using the internet, xbox demo’s can be 5 to 10 gigs, video definitly eats it up, digital download like from steam will eat into it. His biggest turd moment is the internet company will send you a warning letter about your usage, just before showing they will bill you for overage not warn you. This turd needs to get his fact straight instead of being a puppet for data caps, did you see the strings on his eye brows. ISP’s can add more pipes to accommodate for more bandwidth, while slight raising the monthly cost. Simply data caps are there to keep internet TV from competing with cable TV

    • Loony Toony

      Agreed, the caps are simply there to prevent them from competing with legitimate high quality services from voip, video, and music streaming sites while protecting their outdated and conflict of interest model of a phone, cable TV package, and music services. Look at the limitations they put, they force you to use a supplemental hdtv tuner box to watch their compressed lower quality hd that in some cases uses more power than your refrigerator per month when your HDTV already can decode the channels since their is a standard in place. The caps are there because it’s purely a business decision to keep them from innovating and actually competing, not because there is a resource shortage or they’re concerned about file sharing.

      If the ISP is right, then why does our speed vary with the size of the cap, and why don’t they give us the option on our modem to throttle our monthly internet without going over? They know that as more people learn about the alternatives to their overpriced video services that more people will begin cutting the cord permanently, seriously how many times have people surfed the 50+ channels they offered and found nothing worth watching? On netflix, hulu, amazon, and youtube I can always find something worth watching and they all are cheaper than cable or satellite. These ISP’s and Eli Dourado claims stinks of pure lying bullcrap.

  • Pendar

    OC192 pipe 9gbps, which 600 people can have 15 mbps constantly non stop 24/7 with out interruption, the cost is about $4,000 per month to the cable operator, the cost to the cable company per person is $6.60 per person, and they charge an average of 50 dollars per month, but they do put more people on that pipe than 600 because not all of them are going to using max bandwidth 24/7 so the actual cost per person is even lower.

  • Jarrod

    I’m not completely against the data cap thing, but at least have an unlimited option. For people that don’t use that much data, obviously a cap would be good for them as it would be more cost effective. But for people like online gamers a cap would only get in the way.

  • AmericansAgainstDataCaps

    “If you’re a normal Internet user and you browse the Web and use email and watch some YouTube videos here and there, you’re not gonna get anywhere near the cap,” he said.

    WHAT?? Maybe this was normal Internet user 5 YEARS AGO, but not today. A “normal” internet user is going to browse the Web, use email, watch a lot of videos via YouTube/ESPN.com/Hulu/Netflix/etc, sync large files with friends over Dropbox, backup their computer with CrashPlan, play some Call Of Duty and other online games, plus much much more….

    • Bryan

      No Joke this guy doesn’t know a thing! Just makes us “real full users” of the internet pay more