New Report Says “Cash Cow” Data Caps Are About Pleasing Investors, Not Relieving Congestion

(From the New America Foundation report)

(From the New America Foundation report)

Internet users have been complaining about data caps — and the costly penalties for going over said caps — for years, while both wireless and fixed broadband providers claimed these caps were an absolute necessity to curb runaway use. But a new report attempts to debunk many of the ISP industry’s claims.

“Broadband appears to be one of few industries that seek to discourage their customers from consuming more of their product,” reads the new study from the folks at the New America Foundation.

At the heart of the NAF’s argument is that the costs associated with delivering data to consumers has dropped while the number of consumers subscribing to broadband services has increased.

“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,” reads the report.

To back up its claims, the report cites Time Warner Cable’s own numbers, which show that connectivity costs (as a percentage of revenue) have decreased by from 1.20% in 2008 to a little over 0.60% in 2011. The NAF also points out that between 2007 and 2010, Comcast’s operating expenses for high-speed Internet services went from an average fo $147 million per quarter to $122 million per quarter, while the number of customers increased from 13 million to 16.5 million during those years. It’s worth noting that Comcast has not publicly broken out this cost since 2010.

“Despite the substantial decrease in the cost of operating a network and transporting data, consumers have not seen a resulting decline in the cost of service,” writes the NAF, “nor have many providers increased the usage caps to reflect the decline in costs for Internet connectivity.”

As for wireless carriers, the report calls them out for instituting flat data caps for all customers regardless of when or where they use their device to access the Internet.

“Though mobile providers may need to utilize some usage limitations on their network given greater capacity constraints as compared to wired broadband,” reads the report, “the use of flat monthly caps makes little sense when congestion on the network is likely to be time and geographically limited.”

The NAF says the push to get customers onto tiered and shared data plans isn’t driven out of concerns about congestion, but is “largely influenced by Wall Street demands to report ever-growing revenue and profit margins. Rather than effectively managing use of the network, data caps are a strategy for ISPs to increase their revenue per user.”

In that regard, the report says AT&T and Verizon are successful: “Tiered pricing and data caps have also become a cash cow for the two largest mobile providers… who already were making impressive margins on their mobile data service before abandoning unlimited plans.”

The report takes issue with ISPs’ claims that caps are in any way intended to prevent congestion, citing a letter from Comcast to the FCC where the Kabletown folks admit that its broadband data caps do “not address the issue of network congestion, which results from traffic levels that vary from minute to minute.”

If you’re interested, you should check out the entire report, which is quite clearly written for a study on a topic that is usually bogged down in industry jargon and policy-speak.

[via Ars Technica]

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