ISPs Push for Data Caps While Profits Soar, Costs Decline

Says customers who use more should pay more, but critics point out that their costs are fixed, their networks are engineered for the peak hour, and that the cost to double the Internet capacity of an entire neighborhood costs a measly average of $6.85 a home.

ISPs across the country have been dabbling with data caps for a while now.

Time Warner began data cap trials in Beaumont, TX last June and had planned to do the same for additional markets in Texas, New York, and North Carolina until objections from consumers and some legislators prompted it to change its mind.

Why? Reports pointed to $15 for up to 1GB a month of bandwidth, $29.95 for 5GB, $54.90 for up to 40GB, and an undisclosed amount for up to 100GB. The first package means you could never watch a movie online. Period.

Comcast then announced a systemwide data cap last August, but at 250GB customers could still download 312 800MB XVID movies.

AT&T is still conducting trials in Reno, NV as well as Beaumont, TX, where people just can’t seem to get a break by the way. It offers package that range from 20GB a month to 80GB.

Now data caps are fine if they were based in economic reality. The problem is they aren’t and ISPs are being extremely dishonest when they say they’re necessary to recoup costs.

“With regard to consumption-based billing, we have determined that as broadband usage and penetration grow, there are increasing differences in the amount of bandwidth our customers consume,” said Landel Hobbs, TWC chief operations officer, when trying to defend data caps earlier this month. “Our current pricing plans require all users to pay the same amount, whether they check e-mail once a month or download six movies a day. As the amount of usage has dramatically diverged among users, this is becoming inherently unfair and not the way most consumers want to pay for goods they consume.”

What he’s not telling you is that ISPs are still making profits while investment in network equipment is decreasing.

Critics point out that although some customers may use more bandwidth then others the networks are constantly being upgraded to handle peak hour periods when most customers are online at once.

“All of our economics are based on engineering for the peak hour,” said Tony Werner, the chief technical officer of Comcast. “Just because someone consumes more data doesn’t mean they drive more cost.”

Exactly.

Even more infuriating is that the cost of the equipment necessary to expand network capacity is decreasing all the time as technology improves. Comcast even apparently told investors recently that it only costs an average $6.85 per home to DOUBLE the bandwidth capacity of an entire neighborhood. Think about how much your broadband connection costs each month and then stop to consider that your ISP is concerned over a measly seven bucks!

It also told investors that the equipment necessary to provide 50Mbps costs less than it had paid for the 6Mbps equipment.

JCom, Japan’s largest ISP, offers 160Mbps broadband service for $60 p/mo.

Moreover, ISPs are being intellectually dishonest when they say that those who use more should pay. I think that what ISPs are really trying to do is to maximize profits on Internet service while they can. As more people switch to watching content online, it may be an even tougher sell down the road to implement data caps.

Stay tuned.

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