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Study: Caps And Overages Are About Ripping You Off
Not About Fairness, Recovering Costs or Saving Puppies
by Karl Bode 08:29AM Thursday Feb 21 2013
Back in January, former FCC boss turned cable's top lobbyist Michael Powell finally acknowledged that caps on fixed-line broadband networks weren't actually about congestion -- after the cable industry spent much of the last decade arguing caps were all about congestion. Powell did continue perpetuating the myth that caps and overages were about fairness, when most people at this point realize it's simply about driving up the price of data a. because a lack of competition allows it and b. to offset inevitable TV revenue losses to Internet video.

Powell last month also tried to argue that caps and overages were about recovering "high fixed costs" and the billions invested in carrier networks, apparently assuming the public was incapable of reading earnings reports. A new study by the Open Technology Institute (which takes money from companies including Google) argues that this argument doesn't carry water, either. According to the OTI's report, investment in networks has long-since been recouped through high prices, and overall investment in networks is down:
Yes, cable companies and others have invested billions in building networks, but they have received more than healthy returns on those investments for several decades. According to analyst estimates listed on the NCTA website, cable companies invested over $185 billion in capital expenditures between 1996 and 2011. But these networks generated close to $1 trillion in revenue in the same time period. Moreover, both Comcast and Time Warner Cable are now spending less on capital expenses relative to revenue than in past years.
The report also takes aim at the industry's constant assertion that caps and overages are about "fairness" or a desire to "experiment with creative new pricing models." As we've noted so often, creativity or fairness are never part of the equation when these new pricing models show up on your doorstep (go ahead, ask a Canadian friend). The report singles out Time Warner Cable's Internet Essentials tier (which I've also criticized) as a prime example of the fairness illusion:
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Marketed as "Essentials Internet," the company offers a $5 discount on a $45 broadband plan for a package capped at 5 GB of data per month. To put the data usage in perspective, in 2012 the FCC reported the median cable broadband subscriber uses about 28 GB per month.11 Thus, for a modest 11 percent discount, an individual must reduce his or her data consumption by 82 percent compared to the median cable user. Is this “fair” pricing by anyone’s definition?
The obvious truth is that cable operators benefit from uncompetitive markets that allow them to use artificially imposed limits to gain market leverage and jack up prices. Industry executives can't just say they're burrowing their snouts deeper into the trough, so guys like Mike Powell are paid to pretend that usage caps and overages are about saving puppies, battling communism, or fighting evil wizard walruses (or whatever excuses the industry's paid distortion hounds concoct next week to justify charging $10 per gigabyte).

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