Study: ISP data caps only serve to increase company profits

By Stephen C. Webster
Tuesday, December 18, 2012 16:03 EDT
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Bandwidth caps implemented by major American Internet service providers (ISPs) in recent years don’t actually help networks deliver reliable service and instead only serve to inflate company profits, a study published Monday found.

“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,” The New America Foundation’s study stated. “The reason for this counterintuitive business model is that in the noncompetitive US marketplace, it is highly profitable.”

The study found that as the subscriber-base for companies like AT&T, Comcast and Charter has expanded, the cost for data delivery has hit record lows. Meanwhile, about 64 percent percent of American Internet subscribers are now on bandwidth-limited plans.

Companies that implemented such policies have without exception told customers that they’re intended to head off network congestion ostensibly caused by heavy Internet users. Most caps, however, allow the user to purchase more bandwidth for a fee, as if it were a tangible object instead of a continuous service.

But even Comcast itself, the study notes, admitted in a letter to the Federal Communications Commission (FCC) that its bandwidth caps “does not address the issue of network congestion.”

“Some estimate that cable broadband providers enjoy gross margins as high as 95 percent, an exceptionally high rate of revenue relative to the supposed costs associated with offering the service,” the study explains. “For these companies, selling broadband packages even to the heaviest users is still quite profitable.”

Critics of the caps often suggest that they’re designed to both inflate profits and impede competition in an increasingly consolidated marketplace, particular when it comes to video delivery.

“Law professor Susan Crawford sums up the problems of the residential broadband marketplace, observing ‘the cable operators have a built in, giant conflict of interest,’” the study noted. “‘They want to make sure that only their own premium video products are successful, and they can twist all the dials to make sure that happens.’”

Photo: Shutterstock.com, all rights reserved.

(H/T: Ars Technica)

Stephen C. Webster
Stephen C. Webster
Stephen C. Webster is the senior editor of Raw Story, and is based out of Austin, Texas. He previously worked as the associate editor of The Lone Star Iconoclast in Crawford, Texas, where he covered state politics and the peace movement’s resurgence at the start of the Iraq war. Webster has also contributed to publications such as True/Slant, Austin Monthly, The Dallas Business Journal, The Dallas Morning News, Fort Worth Weekly, The News Connection and others. Follow him on Twitter at @StephenCWebster.
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