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Data caps prevent online video offerings that compete with – and potentially replace – cable TV. But don’t take our word for it. Just ask Sony.
Last fall, the Wall Street Journal reported that Sony was planning an online video service – something like a virtual cable company. For a fee, Sony would offer you a bunch of channels and deliver them over the internet. This model is great because it allows new companies to offer TV content and compete with cable companies. The only problem is that it relies on the fat broadband pipes that the cable companies control.
Fast forward to today. Michael Aragon, VP and GM of global video and music at Sony Network Entertainment admitted that the entire plan is on hold. Why? Because of Comcast’s data cap.
As detailed in our recently released whitepaper Know Your Limits, there is nothing inherently wrong with data caps. However, because there is a strong possibility (and temptation) to use them anticompetitively, it is critical that they are applied in a transparent manner.
Up until now that has not been the case with any internet service provider (ISP) – wired or wireless. While some ISPs make some mention of congestion (a momentary phenomenon that data caps are poorly equipped to address), that is not what drives Comcast’s cap. We can be sure because back in 2008 Comcast told the FCC that its cap was “independent of, and should not be confused with” any congestion management practices.
We may not know why Comcast has a cap, but we do know at least three things about it.
- First, it was set at 250 GB back in 2008 and has not changed since, even though Comcast has extensively upgraded its network in the intervening years.
- Second, 250 GB is just slightly below 288 GB – the amount of data that Comcast itself estimates a household would consume by replacing its cable service with internet-delivered video.
- Third, the only thing exempted from Comcast’s cap is its own on-demand video app on an Xbox360 or Tivo.
Of course, this concern is not specific to Comcast. Any ISP with a pay-TV business has a strong incentive to protect its pay-TV business with caps.
The first step towards responsibly considering data caps is to have answers to some fundamental questions: How are caps set? Once they are set, how are they evaluated against their goals? Under what conditions would the caps change? That is why last week we sent letters to the CEOs of the nation’s largest ISPs asking them to answer some straightforward questions.
If data caps are serving a legitimate purpose, it is time to make that purpose known.
If all they are doing it stifling competition and gouging customers, well, it would be nice to know that too.