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The War Over Data Caps Is Brewing (Again)

Ringer illustration
Ringer illustration

Remember the golden age of wireless plans, when we lived in an Eden where the unlimited data and video streams flowed like endless wine? Carriers put the kibosh on that as soon as they could (though such plans have recently reemerged with a host of caveats). Could the internet in our homes eventually be metered in the same way?

Netflix seems to think so. The company, always vocally opposed to any policies that might discourage people from streaming more content, issued a filing to the Federal Communications Commission last week opposing the creeping emergence of data caps on home broadband service. “Data caps (especially low data caps) and usage-based pricing (UBP) discourage a consumer’s consumption of broadband, and may impede the ability of some households to watch internet television in a manner and amount that they would like,” the company wrote.

Usage-based pricing has been a part of internet service providers’ business models since the 1990s, when AOL charged an hourly rate for dial-up. As competition increased, ISP’s switched to charging a flat monthly fee for internet use. Data caps persisted in some cases — Comcast had a 250GB cap until 2012, when it became more lenient — but they often far exceeded the needs of a typical household.

Late last year, though, caps became a serious point of contention when Comcast began instituting a 300GB cap in some trial markets, mostly in the South. Times had changed — Netflix was sucking up more than a third of peak internet traffic by then, and a number of services had launched that let people stream live television on the internet. A cord-cutting household could conceivably plow through hundreds of gigabytes of data in a month. In April, The Wall Street Journal profiled several wholesome, tech-savvy American families living under the cap who were forced to adjust their digital lifestyles to avoid paying overage fees. One poor soul in Mississippi could no longer fall asleep to Netflix for fear of wasting precious gigabytes. Who among us wants that privilege ripped away?

Shortly after the story was published, Comcast announced that it was increasing the cap to 1 terabyte, or 1,000 gigabytes (customers can pay $50 extra for unlimited data or $10 per extra 50GB) in trial markets, a move that earned praise from Netflix CEO Reed Hastings. Just how far will that get a couch potato? According to Netflix’s ISP Speed Index, its video content streams at a speed of 3.5 Mbps on Comcast’s pipes. That works out to about 1.6GB of data consumed per hour. You’d have to watch more than 630 hours of video in a month, or 21 hours of video per day to reach the 1TB limit. Unless you’re running a file server out of your garage or have set up a Clockwork Orange–style brainwashing station in your basement, 1TB is plenty.

“If the average consumer is consuming one-fifth of what the cap is, why is it not fair for the ISP to protect themselves from people who abuse it?” says Dan Rayburn, principal analyst at Frost & Sullivan. “If they let people abuse it, you know what happens? They’re going to raise the rates on you and me.”

Indeed, Comcast has couched the cap in the context of “fairness” in the past — you use more, you pay more. But is streaming more Netflix really the same drain on resources as running the faucet or turning on a light switch? “Broadly speaking, more data requires more capacity, and more capacity costs money,” says Dan Cryan, research director of digital media at IHS. “However, network infrastructure is often in large scale [capital expenditure] spends, which is amortized over a number of years. And U.S. domestic broadband is quite expensive compared to many other markets.” In other words, Comcast used the bills you’ve already been paying to ensure that it can handle the typical streaming load perfectly fine. The cap seems to be more about trying to rein in extreme user behavior. More than 99 percent of Comcast customers don’t come close to using a terabyte per month.

For now. One reason Comcast is hunting for new ways to make money is because of challenges to the pay-for-TV business model. Operators are facing rising fees to carry the networks that customers demand at the same time as subscriber bases have largely stalled or entered a slow decline. (Comcast has actually been impressively resilient to cord-cutting; it lost just 4,000 video customers in the most recent quarter.) But if the traditional TV model does indeed collapse, it’s not going to take a company like Comcast down with it. That’s the benefit of owning all the pipes — if user behavior shifts substantially to watching TV via internet rather than cable, Comcast can shift costs accordingly. Now that caps are on the board, they can be raised or lowered as business needs dictate.

There’s little reason for hand-wringing about the practical limitations of data caps at the moment. AT&T also boosted its cap to a terabyte recently, and Charter, the second-biggest ISP after Comcast, is banned from instituting caps as part of the terms of its merger with Time Warner Cable.

But it’s definitely an area where consumers need to stay vigilant. We’ve been weaned off the idea of unlimited data before, and look where that got us. “The obvious point becomes, ‘Is this a slippery slope?’” says Cryan. “We are a long way away from that, but there’s a hypothetical possibility given the lack of last-mile broadband competition.”