Data Caps Undermine the Freedom to Compete

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Today at CES, Senator Ron Wyden unveiled his Freedom to Compete agenda.  This is an important step towards protecting and encouraging competition online.   While there are many encouraging parts of the Senator’s speech, this post will focus on one: data caps.

Public Knowledge has been concerned about data caps for some time.  Fundamentally, these concerns flow from the fact that data caps incentivize ISPs to monetize scarcity, can be used anti-competitively, discourage experimentation online, and can cause users to over-pay and under-use their internet connection.  While there are certainly ways that data caps could be implemented reasonably, thus far we have not seen very much evidence of that type of implementation.

We are glad to see Senator Wyden recognize that data caps impose costs on consumers and innovators.  Their benefits are much harder to nail down.  Monthly caps are an extraordinarily inefficient way to handle momentary network congestion (assuming that congestion exists at all).  They are a similarly opaque way to implement a price discrimination strategy that actually helps consumers understand their connection needs.

Data caps can also create a disincentive for ISPs to invest in their networks.  The assumption at the core of data caps is that bits are in dangerously short supply.  Every dollar invested in the network increases its capacity and undermines the structure of the cap. Robust networks are expensive to build and can easily support high caps (if they are justified at all).  Aging networks have already been paid for and may only be able to support low caps.  An ISP with low caps and an aging network has little incentive to pay to invest in a network that will also undermine profits flowing from low caps. 

Caps also increase the cost of experimentation online, thereby chilling innovation and disadvantaging new entrants.  When sent a link to a new video, app, or online experience, a capped user must ask herself “do I have space under my cap?” before clicking.  Oftentimes, this question will also be “what am I doing now that I am willing to forgo in order to try this new thing?”  If the answer is “No” and “Nothing,” as it often will be, the link will go unclicked and the user will not have a chance to try the  new thing.  This is not a recipe for online innovation and change.

Finally, data caps are a recipe for over-payment and under-use.  As we have detailed, data caps are a poor vehicle for price discrimination because they are so hard for consumers to understand.  In light of this confusion, consumers are likely to pay for caps that are higher than they need and underuse their connection in order to avoid overage charges.  This creates a great deal of waste and ISP profit, but no consumer benefit.

Although we are encouraged that the FCC has taken the first steps towards considering the impact on data caps on internet usage, consumers and innovators should not be forced to continue to wait for the Commission to come to terms with this pressing issue.  We welcome Senator Wyden’s recognition of the centrality of data caps to online innovation and look forward to working with him, the rest of Congress, and ISPs to ensure that everyone can enjoy the freedom to compete.

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