Data Caps: How ISPs are Stunting the Growth of Online Video Distributors and What Regulators Can Do About it

Abstract

Many high-speed Internet Service Providers (ISPs) have begun limiting the aggregate data usage of subscribers. These limits, or 'data caps,' have received relatively little regulatory, legislative or media attention compared to Net Neutrality issues, described by some commentators as setting a 'speed limit' for internet users. But if Net Neutrality principles will decide the internet’s speed limit, data caps will determine the end user’s mileage.Comcast and other ISPs have attempted to justify these programs on two grounds: first, that limiting data usage is necessary for a fair allocation of costs; second, that limiting data usage will help limit network congestion. However, neither of these justifications survives scrutiny. Not all uses of an ISPs network cost the ISP the same amount. In particular, video providers like Netflix, which make up a plurality of the data received by end-users, create profit center for many ISPs, because Netflix and others pay for the privilege of connecting more directly to customers through 'paid peering' arrangements. On the second point, there is no evidence that data caps will ease congestion and Comcast’s own engineers admit that data caps will not affect network congestion.Instead, the primary benefit to ISPs is it allows them to cling to a cable or satellite based subscription video service. With data caps, customers are free to augment, but not replace, their cable viewing with services like Netflix and Hulu. This unfair use of market power suggests substantial antitrust liability for Cable ISPs, and potential liability under recent FCC regulation as an unreasonable “network management” practice. Regulators should take action against ISPs imposing data caps, not only for the sake of consumers, but to ensure the continued exponential growth of online communication.