With Data Caps on the Rise, the FCC Must Consider Competitive Implications

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Many people have been "cutting the cord"--cancelling their cable TV subscriptions--and watching more video online. Usually, however, their broadband provider is the same company that used to be their TV provider. Cord-cutters tend to use broadband more than non-cord-cutters, so large cable companies that want cord-cutters to start paying them more again have hit on a solution: just charge more for broadband.

But, it's hard for cable companies to single out just cord-cutters for price hikes (though some bundling practices effectively do manage it). If, instead, in the name of "fairness," cable companies start charging by usage--instead of just offering traditional broadband speed tiers--they are likely to get a lot of cord-cutters to start paying more for broadband than they currently do, simply because they're likely to use it more. This is the likely reasoning behind Comcast's recent expansion of its data caps "trial," and similar moves throughout the industry. (It's worth noting that naked price hikes are always tough for a business--not that that has deterred the cable industry in the past. But price hikes that are masked through a fundamental change in billing methodology may be easier to sneak through with less customer outrage. They make it harder to make an apples-to-apples comparison, and the effects will be different for different users.)

It makes perfect sense for cable companies to focus price hikes on broadband instead of video. People can get video online and from satellite, while a cable provider is often the only wired, high-speed broadband option available. So price hikes on video are more likely to lead to people dropping the service for a competitor than on broadband. (Lucky people like me who can choose between cable or fiber tend to have better service and lower prices than people in less-competitive markets.)

Hidden price hikes are nothing new for the cable industry. Below-the-line hidden fees, bogus equipment charges, and so on have been standard practice for years. The amount customers actually pay per month is usually much higher than their advertised service cost. But Comcast's recent experiments with usage-based billing should be viewed in this light: an attempt to get customers to pay more, if not today, then tomorrow. Business analysts have suggested for years that cable companies can, or should, start charging more for broadband to make up for cord-cutting, and this is how they're doing it.

As cable industry studies and Comcast's own internal documents make clear, usage-based billing is not about managing network performance or congestion, but simply a way to make some users pay more.

Of course, the idea that some users should pay more than others is not objectionable. Broadband providers have offered different speed tiers for years. The question is what the secondary effects are of a usage-based model, and how the level at which any data caps are set can affect this. For instance, a data cap that is too low can discourage certain kinds of usage, including online video, backup services, and streaming games. A data cap is also harder for users to conceptualize, while the difference between "fast" and "slow" Internet is widely understood.

Thus, usage-based billing and data caps raise a host of issues, which is why the FCC should act on Public Knowledge's years-old request for the FCC to investigate why caps are being set (for example, whether they are anticompetitively designed to prevent further customers from cutting the cord, or just to raise revenue), and the level at which they are set.

More broadly, cable broadband providers are only able to raise their rates in ways both blatant and hidden without losing customers because they do not operate in a competitive environment. Unless we can address that fundamental problem, the FCC must ensure that broadband providers do not take advantage of their market power to impose unfair broadband billing practices.

 

Image credit: Flickr user SEOPlanter

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