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Should Broadband ISPs Kill Data Capped Packages? Like Netflix Wants

Tuesday, Sep 13th, 2016 (9:37 am) - Score 1,157

Internet video streaming giant Netflix has once again rubbed broadband ISPs up the wrong way after it effectively called for providers to scrap packages that impose data caps (usage allowances) on their subscribers. But not every house needs an “unlimited” service and not every ISP can afford to run one.

Hopefully by now most consumers should be aware that home broadband connections are “Best Efforts” services that share their local network capacity between many users, which is one reason why your service speeds may slow during Peak Times when most people are online (i.e. 6pm onwards, as people return home from work and go online); experiences do vary.

The other advantage of sharing capacity is that it enables ISPs to offer more affordable packages, which is why the broadband side of your service will usually cost £30 per month or significantly less (especially on an older / slower connection). By comparison a truly un-contended connection, one that is perhaps more comparable to a business service, would cost a lot more.

In the United Kingdom most of the primary ISPs have long since adapted to the model of so-called “unlimited” usage, but this doesn’t mean to say that such a model is easy to deliver and thus many providers still offer packages with a capped usage allowance (e.g. 40 GigaBytes per month).

However Netflix, at least in the USA, now wants to see such packages being removed from the market. According to the video streaming giant, “Data caps on fixed line networks do not appear to serve a legitimate purpose.”

Netflix’s FCC Filing (USA)

II. Data caps can impede the use and availability of advanced telecommunications capabilities.

Data caps (especially low data caps) and usage based pricing (“UBP”) discourage a consumer’s consumption of broadband, and may impede the ability of some households to watch Internet television in a manner and amount that they would like. For this reason, the Commission should hold that data caps on fixedline networks and low data caps on mobile networks may unreasonably limit Internet television viewing and are inconsistent with Section 706.

A data cap or allotment of 300 GB of data per month or higher is required just to meet the Internet television needs of an average American. This does not account for the other things that consumers typically do with their broadband connections, such as web browsing or downloading games or apps from the Internet. An above average television watcher, a multi-occupant household, or a consumer wishing to watch in 4K requires a much higher cap or allotment. In this way, today’s ‘above average’ Internet consumer is tomorrow’s average Internet consumer.

Data caps on fixedline networks do not appear to serve a legitimate purpose: they are an ineffective network management tool. Fixedline BIAS providers have stated that data caps on fixed line networks do not serve a traffic management function. They have been described alternatively as a way to align consumers’ use of the network with what they pay. As a method of price discrimination however, data caps and UBP are redundant to the speed tiers that consumers are used to. Data caps and UBP raise the cost of using the connections that consumers have paid for, making it more expensive to watch Internet television. The Commission should recognize that data caps and UBP on fixed line networks are an unnecessary constraint on advanced telecommunications capability.

At this point it goes without saying that Netflix have an obvious vested interest because, in their own words, “consumers are less likely to watch Internet television … when data caps are too low.” This is a fair point and indeed we, like most people, tend to favour the slightly more expensive flexibility of an “unlimited” package over a cap.

On the other hand it’s perhaps wrong to say that data caps don’t serve any “legitimate” purpose in the market. Firstly, a lot of ISPs that offer “unlimited” services will also present new customers with the option of a capped package, which is usually several pounds cheaper and aimed more at those who choose not to use the Internet much (these won’t be Netflix users).

The economic model of a capped package is also a lot easier for the ISP to construct and thus related subscribers are less likely to suffer from a reduction in service speeds during busy peak times (sadly this isn’t always the case). Other measures, such as the application of Traffic Management, can also become largely unnecessary on capped services.

By comparison the “unlimited” model is still a fundamentally more difficult economic and network capacity challenge for ISPs to deliver, especially among those smaller providers that are building alternative networks and which do not have the advantage from economics of scale on their side.

The biggest ISPs can leverage economics of scale to their advantage to keep their cost vs usage model balanced. Likewise some bigger providers may also be able to subsidise their broadband service (i.e. it will look cheaper) by using it as part of a bundle to entice and lock-in customers, where more profit may be earned back from Pay TV than broadband etc.

The cost of bandwidth / capacity remains a big headache for ISPs and getting the balance right is by no means an easy task. Sadly consumers who have become use to the “unlimited” approach will often be oblivious to the headache factory going on behind the scenes. Not to mention the added cost of commercial peering / routing arrangements with Content Delivery Networks (CDN), which is an aspect where Netflix doesn’t always help, but that’s another story.

Admittedly the situation in the USA is not directly comparable to the UK market, but there are also many similarities. In our view there’s an abundance of “unlimited” packages in the UK and plenty of capped options, but scrapping caps could easily risk limiting that choice (especially for light users) and might also force some smaller ISPs to increase their prices in order to compensate.

At present nobody is formally proposing this for the United Kingdom, yet.

Mark-Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and .
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