The Destructive Power of Data Caps

From video-streaming sites to online education platforms to cloud computing services, innovative new Internet applications are using more and more data. But a trend is stifling the promise of these new technologies: the rise of increasingly restrictive data caps.

Internet service providers use these caps to limit how much data people use each month: Exceed the cap and you have to pay more. Providers claim these caps are necessary to address rising costs and manage network congestion — but they’re really just a way to boost revenue for these companies.

Over the past few years, AT&T and Verizon Wireless have removed their unlimited data plans and introduced data caps. Previously Comcast and other ISPs instituted caps on the wireline side (that is, on cable or DSL broadband connections). Capping the Nation’s Broadband Future? — a new report from the New America Foundation’s Open Technology Institute — questions several of the common arguments companies use to justify data caps.

Broadband users consume more data each year — and ISPs claim this usage poses a hardship for their networks. However, financial records from AT&T, Comcast, Time Warner Cable and Verizon show that over the past few years, revenue has risen as capital expenditures have gone down. Hardware used to operate broadband networks has increased in processing power while declining in cost. The price companies charge to access each other’s networks has dropped, and operational costs for broadband networks are decreasing even as these networks serve more customers. Wireless providers are also reporting higher profit margins and revenue numbers.

Data caps are also not the best way to address network congestion. Broadband networks are impacted most by simultaneous demand during peak hours. Yet caps discourage use at all times — even in the middle of the night, when most people are sleeping.

We wouldn’t have data caps if we had genuine competition among ISPs. In more competitive markets outside the U.S., few ISPs impose data caps on their wireline networks. Data caps also fuel uncompetitive behavior.

Earlier this year, the Justice Department conducted a probe into data caps — examining the ways in which cable companies use caps to protect their legacy video services from new digital competitors. Streaming video services like Netflix, for example, lose their appeal when consumers are worried about hitting their ISPs’ monthly data caps.

The rise of data caps — particularly on the mobile side — threatens future growth and innovation on the Internet. An uncapped Internet gave rise to the innovative platforms and services we’ve come to love. Companies must regard broadband and bandwidth as abundant resources, not rationed commodities, to ensure the vibrant online ecosystem continues to flourish.

Hibah Hussain, Danielle Kehl and Patrick Lucey co-authored Capping the Nation’s Broadband Future? along with Benjamin Lennett.

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