Public Knowledge May Seek Formal Investigation into Usage-Based Data Caps

PK first raised questions about AT&T’s use of wireline data caps 18 months ago, Feld said. “We understood when cable did it, but DSL was always supposed to be different because of the architecture,” he said. This week, PK questioned AT&T’s use of wireless caps after the company suggested it would allow content providers and app developers to pay for the mobile data customers use (CD Feb 28 p 17). Consumer watchdogs have been keeping their eye on data caps to make sure things don’t play out in a discriminatory manner. There’s nothing necessarily wrong with usage-based pricing, they say, but some say it might the first step toward a discriminatory future.

Free Press supports the FCC’s taking a closer look at the impact usage caps have on consumers, Policy Director Matt Wood said Wednesday. Whether usage caps have net neutrality implications depends on the situation and whether they are applied in a discriminatory fashion, he said.

AT&T’s “trial balloon” of allowing content providers and app developers to pay for the mobile data its customers use could play out in a pro-consumer way, he said, if it’s a situation where the user himself is prioritizing content, could opt into different services, and the application provider could pick up the tab. “That’s not something out of the gate that we would say is a per se net neutrality violation,” he said. But shifting costs onto the content providers might push the issue onto the net neutrality spectrum, he said. “The devil is in the details and we have to see if there really is a devil in there. It’s that next step, and the follow-up, and the ramifications in the app developer ecosystem that we're concerned about."

AT&T’s plan “raises network neutrality questions and may violate FCC network neutrality principles,” said Andrew Schwartzman, senior vice president at Media Access Project. “Even if it turns out that this fits under the loopholes that were provided for wireless Internet services in the FCC’s open Internet order,” he said, referring to the reasonable network management principles espoused in the FCC’s 2010 net neutrality order, “it raises a prospect of discrimination against content providers and the possibility that new entrants into a market will face additional barriers."

PK spokesman Art Brodsky said they had twice asked the commission to look into data caps and related issues in the spring and summer of 2011, but never got a response. “We're very concerned,” Brodsky said. “What they're doing is creating a wireless shortage. Why do you need those caps? Nobody has yet justified it."

Data caps are “a rational response to the spectrum crunch,” said Information Technology Innovation Foundation Senior Fellow Richard Bennett. “We're all going to become a lot more familiar with spectrum scarcity as demand for mobile capacity outstrips supply and carriers are required to spend more to split existing cells and build new, smaller cells,” Bennett said. “As long as data caps don’t prevent mobile users from accessing the content and services of their choice, they aren’t a policy problem.” Bennett noted that users can avoid caps by using Wi-Fi for high-volume services or by choosing carriers that offer uncapped services. “The sale of the last bits of capacity is not troublesome as long as the carrier is able to honor the terms of service for the transaction,” he said. “Whether capacity is sold to senders or receivers is academic: bits are bits."

"It is way past time for the consumer groups to get over knee-jerk opposition to usage-based pricing,” said Free State Foundation President Randolph May. “They should understand that, one way or the other, the costs of networks must be recovered from the users of the network, and that providers must have the flexibility to experiment with different pricing models that make sense from an economic and efficiency standpoint.” May noted that FCC Chairman Julius Genachowski discussed how the FCC recognized the need for usage-based pricing flexibility in a speech at the GSMA conference earlier in the week. “While I disagreed with much of the net neutrality order, I'm happy to be with the chairman on this point,” he said.

"Yet again, the left pretends that the Internet is somehow different than every other facet of life on planet Earth,” said Seton Motley, president of Less Government. “When I go to the grocery store, I ... pay more for 10 steaks than I do for two. When I hit the dry cleaners, I pay more for 10 shirts than I do for two. When I get 10 gallons of gasoline, it costs me more than two. Why does the left seem to think that this most rudimentary of economic principles -- you use more, you pay more -- doesn’t apply to Internet bandwidth?"

Feld noted in a blog post this week that all usage caps are not intrinsically bad (http://xrl.us/bmwh2f). He wrote approvingly of Time Warner Cable’s new “Internet Essentials,” plan premiering in some test markets in Texas, in which customers who opt into the new 5GB-per-month metered plan get a discount. “The use of plans with capacity caps can be positive for consumers, if they actually work to reduce prices and encourage differentiated product offerings,” Feld wrote. “As I have said repeatedly, it’s not that usage based billing (or metering, or whatever we want to call it) is intrinsically good or intrinsically bad. But it is subject to abuse, especially in a market with information asymmetry problems and competition problems (such as switching costs)."

It’s important to be cognizant of the different net neutrality implications of data caps in wired and wireline contexts, Schwartzman said, saying the TWC plan doesn’t seem to present any net neutrality issues. “Most people in the public interest community are not inherently opposed to usage based pricing” and it’s not necessarily contrary to open Internet principles, he said. “The problem with most usage based pricing schemes to date has been that they have been disguised rate increases. Because the TWC plan appears to allow for an unlimited service and does not involve throttling speeds, it is more acceptable than other plans I've seen to date."

Pete Ritcher, senior vice president of AT&T Mobility, said Wednesday tiered-data pricing has been a success story for the carrier. “We're very happy with how it’s gone,” Ritcher said at the Deutsche Bank conference. “We've got about 56 percent of our smartphone customers ... on tiered data pricing already in just about a year and a half.”