Data caps, also known as broadband caps and bandwidth caps, have long been a controversial method of managing network congestion by ISPs – or has it? While numerous ISPs have explained away the necessity of bandwidth caps to maintain quality service, former FCC chairman Michael Powell recently explained the real reason may be more financially-driven than companies would like to admit.
When asked about network congestion management through data caps, Powell – who's now the president of the National Cable and Telecommunications Association – replied, "That's wrong". He continued, "Our principal purpose is how to fairly monetize a high fixed cost."
Citing "enormously high" costs for deploying and maintaining physical infrastructure, Powell indicated that ISPs are mostly concerned with recouping those investments, "it is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs."
Supporting his view on the matter, Powell drew a logical comparison to paying an electric bill, whereby people who use more, pay more. The former FCC chairman also invoked free-market principals, suggesting that data caps nurture efficiency and reduce wasteful behavior. "If you have an unlimited pricing model, you can basically say: 'I can build an app or a service and I don't really concern myself with how much bandwidth consumption it will take...There is no disciplining element."
While Powell's reasoning is sound, here's something to consider: are bandwidth and infrastructure costs really as enormous as Powell indicates?
According to Wired, Time Warner Cable generated $1.13 billion in revenue during Q1 2011 but only spent 3 percent of those earnings on bandwidth. Additionally, HowStuffWorks published an interesting article which explored ISP overhead costs in 2011. Their thought experiment concluded that even for ISPs running high-end networks with few expenses spared – physical infrastructure included – bandwidth should cost ISPs around $0.02 per gigabyte. And let's forget about government telecommunication subsidies, by the way.
In case you're interested, here's a recent chart describing major ISPs and their bandwidth limitations.
As a personal note, hard data caps worry me – being temporarily removed from the web after reaching an arbitrary limit seems harsh enough, but having no reasonable option to extend that cap is particularly troublesome. Thankfully, Comcast stopped this approach last year, but others continue their hard cap policies.
On the other hand, I feel soft data caps (tiered) and pay-as-you-go plans do make sense. After all, it's only fair that people who use more pay more. The problem I have with this approach though, is that ISPs don't budge on their pricing: they just take their existing, high-cost plans and make them even more expensive for heavy users.
Call me crazy, but if it costs $55 for 300GB of data, it doesn't seem unreasonable to charge subscribers who use only 50GB much less than $55 – let's say around 10 bucks per month. Rather though, ISPs insist on charging all subscribers a high baseline and penalize bandwidth hogs without rewarding light Internet usage. Most ISP tiered plans appear to be all stick and no carrot.
For soft caps to gain appeal, I believe prices need to be re-analyzed and more fairly assigned. Hard caps ought to disappear entirely. What are your thoughts?