Capping the Nation’s Broadband Future?

Dwindling competition is fueling the rise of increasingly costly and restrictive Internet usage caps

policy paper | December 17, 2012

Click here to download a PDF copy of the full report: "Capping The Nation's Broadband Future?"


The past few years have been marked by unprecedented innovation and growth on the Internet. New digital platforms and rich content from voice-over-IP and video conferencing connect family and friends around the world at little or no cost, high quality video streams facilitate online learning and digital education along with new ways to view movies and TV shows, and a host of platforms and applications allow for the creation and sharing of original content and ideas through cloud based computing.

These examples are just a few of many innovations made possible by a relatively uncapped and unmetered Internet environment. Unfortunately that is rapidly changing. Even as new applications and content require increasing amounts of data, Internet service providers (ISPs) are clamping down on Internet use through putting in place more stringent and costly data limits on their subscribers. ISPs claim that these measures are necessary to manage the growth of Internet traffic on their networks and maintain quality of service. Yet, the technical or engineering rational for relying on monthly data caps to address network congestion is questionable, when congestion is often limited to certain peak hours and locations.

As this paper documents, data caps, especially on wireline networks, are hardly a necessity. Rather, they are motivated by a desire to further increase revenues from existing subscribers and protect legacy services such as cable television from competing Internet services. Although traffic on U.S. broadband networks is increasing at a steady rate, the costs to provide broadband service are also declining, including the cost of Internet connectivity or IP transit as well as equipment and other operational costs. The result is that broadband is an incredibly profitable business, particularly for cable ISPs. Tiered pricing and data caps have also become a cash cow for the two largest mobile providers, Verizon and AT&T, who already were making impressive margins on their mobile data service before abandoning unlimited plans.

The increasing prevalence of data caps both on the nation’s wireline and mobile networks underscore a critical need for policymakers to implement reforms to promote competition in the broadband marketplace. Data caps may offer an effective means for incumbents to generate more revenue from subscribers and satisfy investors, but making bandwidth an unnecessarily scarce commodity is bad for consumers and innovation. The future is not just about streaming movies or TV shows but also access to online education or telehealth services that are just starting to take off. Capping their future may mean capping the nation’s future as well.

Click here to download a PDF copy of the full report: "Capping The Nation's Broadband Future?"