Slate Informs Its Readers That Confusing, Unnecessary, Anti-Competitive Broadband Usage Caps Are Simply Wonderful

from the in-defense-of-price-gouging dept

For years we've explained that broadband usage caps are a horrible idea. Not only do they hinder innovation and confuse the hell out of customers -- but they simply aren't necessary on modern, intelligently-managed networks. Caps are an inelegant and impractical way to handle congestion, and U.S. broadband consumers already pay some of the highest prices for broadband in the developed world (2015 OECD data), more than covering the cost of running a network (as any incumbent ISP earnings report can attest).

And while the mega-ISPs consistently try to argue that usage caps are about fairness, most people are able to see them for what they really are: aggressive rate hikes imposed on uncompetitive markets to protect TV revenues from Internet video.

But according to a strange article over at Slate by Eli Dourado, we've got it all wrong, and caps are secretly "good for most consumers and for the Internet." Like the countless other usage-cap defending missives I've seen in fifteen years of writing about broadband, Dourado's piece begins with the premise that there's something inherently wrong with the current, flat-rate pricing model most broadband users are comfortable with:

"The “equal dues” approach has a critical flaw: It leaves many households with no Internet access at all. For example, suppose “equal dues” work out to $50 per month, not far from the average cost of broadband today. Some households with limited use for the Internet may only value access—and be able to afford it—at $30 per month. One example is a grandmother on a fixed income who uses email but doesn’t watch online video. Under the equal-dues approach, the grandmother is priced out of the market. She has to go without Internet access altogether."

But broadband service isn't expensive because of the type of pricing the broadband industry employs. It's expensive because of the lack of competition in the last mile. As a result, when companies like Comcast do impose metered billing it's not some kind of Utopian vision where light users pay only a little and heavy users pay more in the name of fairness. It's usually a system where the existing, already expensive flat-rate pricing is layered with entirely new annoying fees and surcharges for all (conveniently just as Internet video spikes and 4K video streaming arrives). In the real world, the end result of usage caps as the industry envisions them is everybody winds up paying more than ever.

Dourado's entire narrative is based upon a fantasy: that without outside incentive (regulators or competition), ISPs want to reduce revenues by charging light users less money. That kind of price competition simply doesn't happen in the broken U.S. broadband market unless you're lucky enough to live in a handful of Google Fiber or municipal broadband markets where incumbent ISPs are spurred to action. Still, Dourado at least provides entertainment value by trying to claim usage caps will be great for the nation's grandmothers:

Grandma will pay less than $30 per month for her light email usage, and her granddaughter who streams movies all weekend will pay more. Metering, therefore, is a way of expanding broadband Internet access to a wider portion of the population.

Except that's simply untrue. Because most people lack the option of more than one or two ISPs (75% of homes lack the choice of more than one ISP at speeds of 25 Mbps or higher), there's no downward pricing pressure for grandma. This fantasy narrative that usage gaps will somehow lower granny's broadband bill is utter nonsense, yet it's an argument ISPs like AT&T have been leaning on for years. Amusingly, it's a missive that has at times even managed to annoy the nation's actual grandmothers who are smart enough to know when they're being ripped off by duopolists.

Dourado only really offers up one other argument in favor of usage caps, and it's equally specious. In short, Dourado tries to claim that flat-rate pricing somehow results in stagnated broadband investment, whereas usage caps, meters and overage fees will somehow encourage and stimulate the necessary upgrades of tomorrow:

Think about it: If everyone paid equal prices for unlimited data plans, cable company revenues would be limited by the number of people willing to pay that equal rate. The only way they could increase profit would be to reduce their costs, for example by neglecting maintenance or delaying upgrades. As a result, we would expect the quality of broadband networks to stagnate."

We'd expect that? We operate under flat-rate pricing now and, despite the desperate sock puppetry of some industry-tied think tanks busy trying to demonize net neutrality, investment has been just fine. That's because companies see very healthy profit margins under flat-rate pricing; if there's a reason they don't put enough of that money back into the network it's not because of the pricing model being used, net neutrality, or the bogeyman. It's because they lack the competitive incentive to do so.

But Dourado fails to acknowledge the lack of competition in the market as the primary culprit behind pricing and investment inequality (in fact the word competition isn't used once in the entire story). And his only "evidence" of the purported investment benefit of caps is the totally unsupported claim that upcoming DOCSIS 3.1 cable industry upgrades will slow if the cable industry isn't allowed to price gouge:

Again, this isn’t theoretical. The DOCSIS 3.1 cable modem standard, just now being finalized, will allow downloads over the existing cable network up to 10 Gbps (10 times faster than Google Fiber). Cable companies are now facing a choice as to how fast to roll out support for DOCSIS 3.1. As the theory predicts, Comcast, now experimenting with metering, is planning an aggressive rollout of the new multi-gigabit standard.

Here's the thing though: nearly every cable operator will be upgrading to DOCSIS 3.1 starting next year because it's relatively inexpensive way to obtain huge performance improvements. It's an upgrade that, thanks to its efficiency benefits and low cost, will likely occur even in uncompetitive markets, and usage caps have nothing to do with that. Comcast's currently promising to upgrade 18 million homes with fiber to the home by the end of this year. Only about a dozen or so Comcast markets are capped. How is it logically consistent to thank usage caps for this investment?

There's certainly an argument to be made for more creative, flexible usage-based pricing options where the lion's share of users potentially pay less -- if they use less. But that kind of model is simply not happening in a broadband market without real competition. To suggest that we can somehow leapfrog this competitive logjam, build better networks and help the nation's grannies -- all by letting ISPs charge users more than ever -- is aggressively and obnoxiously misleading.

Filed Under: broadband caps, competition, data caps, differential pricing, innovation