Should The Government Regulate ISP Bandwidth Caps?

    December 23, 2012

Some of the major ISPs in the U.S. implement bandwidth caps in the name of controlling network congestion, but most caps are just a backhanded way of making more money. One senator is targeting the practice to bring better Internet availability and speed to users across the U.S.

TechDirt reported Thursday that Sen. Ron Wyden, Internet freedom fighter, has introduced a new bill called the Data Cap Integrity Act. The bill would “give consumers the tools they need to manager their own data usage, institute industry-wide data measurement accuracy standards for ISPs, and impose disciplines to ensure that ISP data caps are truly designed to manage network congestion.”

Do you think bandwidth caps are really used to address network congestion? Or are they just used to reap more revenue? Let us know in the comments.

Wyden’s proposed bill follows a report from the New America Foundation that found ISPs were not using data caps to manage congestion, but further increase revenues off of existing subscribers. These fraudulent data caps lead to less competition and innovation in a utility where both are key to its continued evolution.

From the New America Foundation report:

ISPs often claim that caps are necessary to curb “excessive use” and only affect a small fraction of users. Although some providers are reexamining their data caps policies, many of the limits imposed several years ago have largely remained static, even as typical household bandwidth consumption has substantially increased. In 2008, Comcast reported that its median residential broadband user consumed 2.5 GB of data monthly. In 2012, Comcast reports that this number has quadrupled to a median monthly usage of 8-10 GB per consumer. Other sources report even higher usage numbers. According to the Federal Communications Commission’s (FCC) Measuring Broadband America report, the median cable broadband user in the United States consumed about 28 GB a month in mid-2012. As new Internet applications and devices continue to be created, yesterdays so called “bandwidth hogs” are today’s typical users.

Data caps encourage a climate of scarcity in an increasingly data-driven world. Broadband appears to be one of few industries that seek to discourage their customers from consuming more of their product. Thus, even as the economic and engineering rationale for data caps on wireline broadband does not hold up given the declining costs of providing service and rapid technological advancement,the proliferation of data caps is increasing. The trend is driven in large part by a woefully uncompetitive market that allows the nation’s largest providers to generate enormous profits as well as protect legacy business models from new services and innovators.

So, what’s the excuse used by ISPs to keep charging more while instituting data caps? The companies claim the cost of moving data and expanding their networks would put undue cost on the consumer. The New America Foundation’s report respectfully disagrees:

Across the board, the price for this kind of access is decreasing. TeleGeography’s IP Transit Pricing Service,a database of wholesale Internet access price quotes from 50 carriers in 70 cities globally, reports lower charges.According to its 2012 report, “Transit in major Western cities remains competitive, so the reduced costs are passed on to the broadband carriers.” As a result,“Internet traffic has been expanding at what would seem ferocious rates, but the carrier’s net cost has been generally flat to down.” In New York, for example, the median monthly lease price for a gigabit ethernet port dropped 50 percent over the last year, now costing around $3.50 per megabit.

Similarly, network equipment—the industrial routers and switches that make up broadband networks—is declining in price and increasing in processing capacity at a rate similar to personal computers. Dane Jasper, the CEO of, an independent ISP based in California, notes that although broadband consumption has increased, “the cost to deliver those bits, transport them, transit them, peer them off, and deliver them to the edge, has decreased at a greater pace than consumption.”

So, as you can see, there’s really no reason to still be charging high prices nor instituting data caps. In fact, the only real solution to the data consumption problem would be to just increase capacity. It would be cheap to build out networks and it would increase bandwidth for all without having to limit anybody’s bandwidth.

The best way to resolve chronic network congestion in the long term is to invest and expand capacity. Yet, a review of the publicly available financial document for some of the largest ISPs in the country shows a decline in capital expenditures—the costs associated with building, upgrading and maintaining a network, such as construction, repairs, and equipment purchases—for their wireline networks.Many ISPs are spending less money on capital expenditures now, both as a ratio to revenue but also even in raw dollars,than they have in years past.

While some cost decreases can be explained by declines in hardware and equipment costs, these trends suggest that broadband providers are content to maintain the status quo and reap these efficiencies as a bonus rather than an opportunity to increase investment.

Cable companies like Time Warner and Comcast, whose networks were originally built for television services and have now been repurposed for broadband as well, are enjoying lucrative profits on networks that have long been paid off. Some estimate that cable broadband providers enjoy gross margins as high as 95 percent, an exceptionally high rate of revenue relative to the supposed costs associated with offering the service. For these companies, selling broadband packages even to the heaviest users is still quite profitable.

Do you agree with the New America Foundation’s report? Should ISPs start building out their networks to address network congestion? Let us know in the comments.

All of this points to one problem – bandwidth caps are limiting innovation and competitiveness on the Internet. The costs are low enough to start building out the future of the Internet in the U.S. Speed and access would increase around the country while innovation, and jobs, would flock to the Internet like never before. Sen. Wyden said much the same thing when announcing his new bill:

“Internet use is central to our lives and to our economy. Future innovation will undoubtedly require consumers to use more and more data — data caps should not impede this innovation and the jobs it creates. This bill is intended to help consumers manage their data more effectively and ensure that data caps are used only to serve the legitimate purpose of addressing congestion.”

Obviously, telecoms and ISPs won’t like this bill. They’ll come crying to Congress once again with a sob story of how network congestion is a serious threat to their customers, and how bandwidth caps are the only solution. In reality, the only threat to customers comes from ISPs unwillingness to change.

It’s this unwillingness to change that is leading to the U.S. trailing behind pretty much every other developed nation in Internet accessibility and speeds. It’s kind of embarrassing, but some companies, and cities, are starting to solve the problem. Now we just need to get the major ISPs on board before more businesses that rely on the Internet start to leave the U.S. for the greener pastures of South Korea, Japan and France.

Should bandwidth caps be regulated by the government? Or do you think another solution is possible? Let us know in the comments.