GigaOM White Paper: The Facts & Fiction of Bandwidth Caps
Beginning on Wednesday, Comcast, the largest broadband service provider in the U.S., is going to start capping the total amount of data you can transfer using their broadband connection — to 250GB per month. With this move, the cable company will become the symbol of a new Internet era, one that is both monitored and metered. It is an era that threatens to limit innovation and to a large extent, the possibilities for new startups.
I have been very vocal about the short-sightedness of this decision being made by Comcast (and some other carriers), and along with my colleague Stacey Higginbotham, have been covering the story pretty closely. It is a clear and present danger to the way we use the Internet in this country.
In order to give you a better understanding of the issues at hand, I have teamed up with my old friend Muayyad Al-Chalabi, an alumni of Bell Labs and until recently an analyst with The Monitor Group, to release this white paper, “Broadband Usage-Based Pricing and Caps Analysis.”
In this paper, we aim to highlight the possible unintended consequences of such policies, among them the stunting of growth and innovation of web-based applications. And of course, higher costs. Plus:
- The strategy ignores the high degree of dependency “interactions” between power users and the rest of the network. The power users don’t act in isolation and in fact represent the hubs in any scale-free network; sequestering them and overcharging them will result in either low usage or worse, higher costs.
- Given the growth trend due to consumers’ changes in content consumption, today’s power users are tomorrow’s average users. By 2012, the bill for data access is projected to be around $215 per month.
- Strategic pricing involves the recognition that changing prices alone cannot solve the challenges facing carriers. Carriers are taking the easy way out trying to protect the “walled garden” rather than figuring out how to innovate in service delivery and harvesting more value from the overall content and applications opportunity.
If you’re interested in getting a PDF copy of this white paper, please enter your email address below. Otherwise, I have embedded a copy (using Scribd) for you to read it online.
Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.
A quick glance at the paper was enough to prompt me to put my email down for a pdf copy so I can read through it at leisure.
Frankly I’ve been sceptical of the view that real innovation is so sensitive to costs. If the only way that some innovation can succeed is if it has zero marginal cost to the user, then it doesn’t seem to me that the ‘innovation’ in question is all that valuable a thing.
I’m going to be interested to see if you make me change my mind at all.
Well, 250g is a huge amount of bandwidth. Who uses that kind of bandwidth? I would bet it is mostly participants in a p2p network. As you know, the vast majority of such people are breaking the law by distributing copyrighted digital works.
I actually think that the failure by our government to police the distribution of such copyrighted works has left the door open to vigilante efforts like this — and the problem is that Comcast does not actually have the end-user’s best interests at heart. What they care about is profitabilty.
We are left with a vicious circle that hurts everybody.
@OM
Don’t we have a new name for this kind of management.
Namely:
Wall Street
Means short sighted greedy without any substance.
@Ted
For the _nth_ time it’s not about today it’s about the future. See above management description and look at the Investment Banks to what happens when such management practices take place. You bail them out or you pay higher subscription cost, take your pick.
I think it takes either an exaggeration or a rather narrow viewpoint to brand this “a new Internet era” – particularly outside the US, usage based charging is far from new. That said, metering, particularly in the dialup days when every minute spent online represented another penny or more of cost, did have a substantial negative effect on users, both deterring uptake in the first place and deterring users from spending longer than the minimum they could get away with. I doubt Comcast’s cap will have anything like that effect unless either data volumes explode without them adjusting it, or they slash the cap dramatically.
I would prefer a truly unmetered/unlimited service, but there have been far more draconian caps than Comcast’s out there for years without the sky falling on us.
Response to Allen’s comment:
My reference to innovation was not limited to the creation of new service or widget. Innovation can be achieved along multiple axes; Finance (business models), Process, Products and Offers (design, performance, systems, support services) and Delivery mechanisms. Innovation happens when there is a contradiction between two and more elements- in our case end-user demand and carrier cost.
What the carriers need is a mind set built around “creative destruction” (using Schumepeter’s phrase) – a process in which the old ways of doing things are endogenously destroyed and replaced by new ways. Cost-plus only method of pricing will not blend well with the explosive traffic growth and shifts in consumer behaviors. For example, if users had to pay for every web sites visited, then we would not have ad-based business models and users will have stopped using the internet all together.
My general feeling is that Comcast is looking at the future, and seeing their own internal bandwidth needs for content delivery. There is an inherent business conflict in being a content provider and an ISP. They’re most likely to sacrifice the latter to the benefit of the former based on the premium revenue they receive for content.
@WD
You couldn’t be more right about describing Comcast (and other BSP) and their failure to address the big question. I think FCC needs to step in and essentially separate services from the pipes – something they should have done in 1996 and instead we are back to the future. I continue to blame the FCC for all our mess.
@James
I think you just made my point… essentially the usage based charging which was common place outside of the US is now going flat rate. And in places where usage based charging was present, the usage was not enough and innovation was focused almost entirely on making use of as little bandwidth as possible – which if you believe broadband is a platform doesn’t make much sense.
I stopped reading on the first page as soon as I saw the line “direct rate increases are hard to implement in a competitive market.” You can’t have it both ways. You can’t argue that the cable companies are being unfair because the market is non-competitive, and at the same time acknowledge that they’re targeting power users because competition prevents them from implementing direct rate increases.
In fact, I’m more sympathetic to the argument that the market is NOT competitive, but the author blew his credibility with that particular line. With the market as it is, I don’t blame the cablecos for trying to be as profitable as they can be. As far as innovation is concerned, usage caps and metered usage should spur entrepreneurs to come up with ways to deliver content with lower bandwidth usage.
As far as the market is concerned, we should focus more on getting regulators to encourage competition via broadband wireless, etc.
@Dan
Too bad, you stopped reading, because if read further, you might have gotten the points of the paper. It is not just about fairness, but about business decision based on facts on the ground. It is just ironic that it is the same guys who fought À la carte video pricing are installing micro-pricing based on bytes.
Surely, the broadband residential market is not monolithic; some markets are hot and getting hotter (like New York City), but most are NOT competitive at all. It is this mixture of markets, products, national footprints, public scrutiny that prevents carriers from having different policies for different regions at this time. Thus, the tactic of indirect rate increases, initially aimed at soft targets, then affecting every user.
The paper points out the fact that the 5% of users who generate most of the traffic is a phenomena that is not constrained to broadband access, but occurs in natural networks like protein networks. Carriers can chose to fight it, but the results will not be as they expected. Hierarchical structures with different degrees of connectivity