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GAO: Usage Caps Raise Rates, Harm Innovation, Confuse Customers

A new report (pdf) by the General Accounting Office confirms what many people have known for years: usage caps are a symptom of a lack of competition, may hinder innovation, and they're generally confusing for customers. While the industry has long insisted that usage caps and overages are just "creative" pricing, they've long been used in less competitive markets to protect traditional TV revenues from Internet video, and even the industry itself (after many years) admitted they weren't really about managing congestion.

According to the study, usage-based pricing could be of benefit to consumers, assuming a carrier actually offers usage-based pricing:

quote:
The potential effects of UBP are uncertain and could depend on competition among providers. Based on economics literature, UBP can address the usage of the heaviest data users and can benefit consumers by providing more options as opposed to a one-size-fits-all unlimited data plan. The literature also suggests that providers could implement UBP to benefit consumers—for example, by offering low-data, low-cost plans for those who do not want an unlimited data plan.
Of course when there's limited competition, there's no incentive for an ISP to lose money and offer truly usage-based plans, so they traditionally haven't. Instead, what we get are plans that take existing high flat-rate pricing and layer overage fees on top. Or, in the case of Time Warner Cable and Comcast, plans that offer a $5 discount if users agree to switch from unlimited use to a 5 GB cap.

The GAO proceeds to note that with limited competition (much like the limited competition most of you see in your neighborhoods), usage-based billing can create significant problems:
quote:
According to the literature, providers facing limited competition could use UBP to increase profits, potentially resulting in negative effects, including increased prices, reductions in content accessed, and increased threats to network security. Several researchers and stakeholders GAO interviewed said that UBP could reduce innovation for applications and content if consumers ration their data.
Worse, perhaps, the study also notes that the FCC hasn't done a very good job tracking usage cap data, or understanding the pitfalls of such business models:
quote:
While FCC is collecting data regarding fixed UBP, it is not using this data to track UBP use because it only recently started collecting the data specifically to analyze prices. As a result, although FCC is charged with promoting the public interest, it may not know if UBP is being used in a way that is contrary to the public interest and, if so, take appropriate actions.
The study doesn't even touch on the problems that ISPs historically had with metering users accurately. Incumbent ISPs have long wanted to bill their customers like utilities, but have balked (as we're seeing with Title II) at the idea that they should be regulated as such. Like net neutrality infractions, usage caps are just a symptom of a lack of real competition, something this country's regulators have made it repeatedly clear they have no serious intention of fixing.

Most recommended from 67 comments


AmericanMan
Premium Member
join:2013-12-28
united state

4 recommendations

AmericanMan

Premium Member

Also a potential security concern

I could see this being a potential security concern as well -- people not downloading Windows Patches because they are concerned that they'll go over their usage caps.

These patches aren't trivial, sometimes close to a gig (or more), on a 10 GB capped plan, that's a huge chunk.

newview
Ex .. Ex .. Exactly
Premium Member
join:2001-10-01
Parsonsburg, MD

3 recommendations

newview

Premium Member

Telecom's Assault on Cordcutters

Now that we know that the CableMafia's claims that usage caps were about 'congestion' was just more bullshit, perhaps this GAO report will finally convince the FCC to view usage caps for what they are ... an attempt to stem the exodus of subscribers from the exorbitantly inflated pricing of their cableTV offerings by erecting arbitrary roadblocks.