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Why do so many Americans now live with Internet data caps—and what are these caps doing to the future of broadband? Those are the questions posed by a new paper from the New America Foundation, which wants to shake up the lethargy that has descended over the data caps debate by pointing out just how odd the caps truly are. "Internet service and mobile providers appear to be one of the few industries that seek to discourage their customers from consuming more of their product," write the paper's authors. "The reason for this counterintuitive business model is that in the noncompetitive US marketplace, it is highly profitable."
The arguments presented here aren't novel, but they do act as a fine summation of the anti-cap position (and the report is only 13 pages, making it a quick read). First up, the paper questions the very existence of data caps, which are now imposed by most major wireline and wireless Internet providers in the US, by noting that monthly limits have little to do with moment-to-moment congestion. While Internet providers like Comcast realize this and have taken steps to address actual congestion, many of them still impose monthly limits to stop "excessive use" of data.
The truly curious thing about the entire debate has been the way in which caps have mostly remained steady for years, even as the price of delivering data has plunged. For example, paying for transit capacity at a New York Internet exchange costs 50 percent less now than it did just one year ago, and many major ISPs aren't paying at all to exchange data thanks to peering. So why don't prices seem to fall? When I have asked this question in the past, ISPs have responded with a variety of answers, but one of the most popular is that the costs to move data are in fact dirt cheap, but the labor needed to build and maintain the network is not, and such operating expenses are not one-time, but ongoing.
The authors of the new paper contend that all explanations are more or less hand-waving designed to disguise the fact that Internet providers are now raking in huge—in some cases, record—profit margins, without even the expense of building new networks. (Apart from Verizon FiOS and Google Fiber, most cable and DSL operators in the US still offer service over upgraded versions of networks they built and paid for long ago.) While Internet users have to endure a ceaseless litany of complaints about a "spectrum crunch" and an "exaflood" of data from which ISPs are suffering, most wireline ISPs are actually investing less money in their network as a percentage of revenue, and wireless operators like AT&T and Verizon are seeing huge growth in their average revenue per user (ARPU) numbers after phasing out unlimited data plans—which means money out of your pocket. In the view of the New America authors, this revenue growth is precisely the point of data caps.
Report: data caps just a “cash cow” for Internet providers
Caps have remained steady even as costs of delivering data have plunged.
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