GAO Study: Broadband Usage Caps Can Hinder Innovation, The FCC Might Want To Actually Pay Attention

from the gosh-you-don't-say dept

For years incumbent ISPs have abused limited market competition to impose usage caps on fixed-line connections, then sock customers with per gigabyte overages. These slowly-expanding usage caps are usually imposed under the pretense that the ISPs are just ultra worried about fairness and managing the congestion bogeyman. After years of pretense, even the carriers a few years back finally acknowledged that usage caps aren't really about congestion. They're price hikes in a dress, and they're designed specifically to protect legacy TV revenues from the rise of Internet video.

Meanwhile, while ISPs want to bill and meter like utilities, they repeatedly demand that it's unAmerican to regulate them like utilities (as we've seen repeatedly during the Title II fracas). The result so far has been usage meters that often don't work, in some cases resulting in customers being billed while the modem is off or the power is out. Regulators for a decade have napped on this issue, at most acting as if this is just a wonderful example of creative industry pricing.

We've spent many years talking about how usage caps can easily hinder innovation and often just wind up confusing consumers (quite intentionally). Fast forward to 2014 and a new GAO study this week posits that hey, usage caps (and usage-based pricing, UBP) can hinder innovation and may confuse customers:

"According to the literature, providers facing limited competition could use UBP to increase profits, potentially resulting in negative effects, including increased prices, reductions in content accessed, and increased threats to network security. Several researchers and stakeholders GAO interviewed said that UBP could reduce innovation for applications and content if consumers ration their data. While FCC is collecting data regarding fixed UBP, it is not using this data to track UBP use because it only recently started collecting the data specifically to analyze prices. As a result, although FCC is charged with promoting the public interest, it may not know if UBP is being used in a way that is contrary to the public interest and, if so, take appropriate actions."

In other words, the FCC is behind the game when it comes to tracking usage cap data, and therefore couldn't be bothered to study the negative impact of usage caps. The GAO noted that "better communication is warranted" on the issue and that the fixed-line broadband industry should develop a "voluntary code of conduct" to make sure consumers understand what they're buying. While that's all well and good, it doesn't address the failure of regulators to track meter accuracy, nor does it really address the fact that usage caps are by and large (like neutrality violations) the byproduct of uncompetitive markets.

Historically cable and phone companies have argued that they should be free to engage in pricing experimentation, and that straight usage-based billing plans could potentially benefit consumers. The GAO agrees, noting that plans where users only pay for what they use would certainly be ok:

"The literature also suggests that providers could implement UBP to benefit consumers—for example, by offering low-data, low-cost plans for those who do not want an unlimited data plan. While mobile providers GAO reviewed offer such plans, fixed providers—generally facing less competition—do so to a lesser extent."

Odd, that. Obviously the problem is that while carriers pay lip service to usage-based plans that offer value, with no competition this never actually comes to fruition. What we wind up seeing are plans that simply take existing flat-rate unlimited pricing, with overage fees layered on top. In a few instances users will get a tiny discount in exchange for giving up the freedom of unlimited data. For example, Time Warner Cable (who took an absolute PR beating in 2009 and had to retreat from mandatory caps) now offers users a $5 discount if they replace unlimited consumption with a $5 usage cap. Feeling the value yet?

Caps have been a particular worry as Comcast (who is slowly expanding usage cap trials in its least competitive Southern markets) is poised to soon control 40% of the U.S. broadband market after it acquires Time Warner Cable. With AT&T and Verizon backing out of many unwanted DSL markets, cable's going to enjoy a stronger monopoly in many areas over the next decade than ever before. One guess what kind of "creative" pricing plans will be the end result?

Filed Under: broadband, fcc, gao, innovation, usage caps

Verizon Admits To Investors That Title II Won't Harm Broadband Investment At All

from the words-are-but-wind dept

As the company that sued to overturn the FCC's wimpier net neutrality rules (to the chagrin of AT&T and Comcast, who liked the weaker rules), Verizon has of course been leading the charge against Title II, telling anyone who will listen that network investment will decline, innovation will stall, dogs and cats will live together, and mass hysteria will ensue if the FCC regulates ISPs under Title II. Of course you're to ignore the fact that the voice component of wireless networks and parts of Verizon's FiOS network (largely to get tax breaks) have been regulated for years under Title II without the slightest problem for the company.

Given Verizon's repeated assertions that Title II will just crush investment, it was a little amusing to hear Verizon CFO Fran Shammo this week clearly tell attendees of the UBS Annual Global Media and Communications Conference that Title II won't harm the company's network investments in the slightest. Shammo was asked about whether Title II would sour Verizon's interest in investing in United States broadband. Shammo's reply:

"I mean to be real clear, I mean this does not influence the way we invest. I mean we're going to continue to invest in our networks and our platforms, both in Wireless and Wireline FiOS and where we need to. So nothing will influence that. I mean if you think about it, look, I mean we were born out of a highly regulated company, so we know how this operates."

Companies (especially CFOs) tend to forget that the public has ears when speaking at these sort of events, but apparently Shammo quickly realized what he had just admitted -- so he then tries to backtrack:

"And I also think that if you look at other countries who have done this, it kind of leads you down to [a] path of total failure because it really, really slows down investment and slows down innovation."

Right. Clear as mud. Title II won't impact network investment whatsoever, but Title II will like totally impact network investment. Verizon pretty clearly wants to have its cake and eat it too, even if it makes absolutely no logical, coherent sense. Of course that's because the mega-ISPs aren't really that worried about Title II -- they're worried that the FCC will create enforceable rules that will prevent them from abusing the industry's stranglehold on uncompetitive broadband markets with all manner of "creative" pricing and content/service discrimination.

Filed Under: fran shammo, investment, net neutrality, title ii
Companies: verizon