What Are Bandwidth Caps For?

ISPs like Comcast, AT&T, Cox and Charter claim they’ve instituted monthly bandwidth-usage limits as a way to ensure good service to 99% of their customers — by capping the 1% or so of elite broadband users who use a disproportionate amount of network resources.

But there remains a conspiracy theory floating around that the biggest broadband providers are limiting usage to protect their TV businesses from over-the-top challengers, rather than to just keep a lid on peer-to-peer file sharers.

One of the latest contributions to this meme comes from Dane Jasper, CEO of Sonic.net, a small DSL provider based in Santa Rosa, Calif.

“My opinion is that caps make little technical sense, and I believe that the fundamental reason for capping is to prevent disruption of the television entertainment business model that feeds the TV screens in most households,” Jasper writes in Dec. 2 blog post (hat tip to DSLReports.com). “It’s common sense — if you are selling a service bundle to a household that includes a subscription TV service, it would make business sense if there wasn’t enough broadband capacity to replace it.”

Jasper’s point about bandwidth caps is that they’re a crude instrument for relieving congestion, and they penalize the heaviest users even though those so-called “hogs” aren’t any more or less responsible for eating up bandwidth during peak periods of congestion than the 99%.

So is variable time-of-day usage pricing the answer? Supporters of the idea of usage-based pricing (beyond just caps) argue that it’s the only logical economic model to sustain investment in the network, if or when Internet video consumption rises to the level of TV watching.

Influential Wall Street analyst Craig Moffett of Sanford Bernstein has promulgated this idea (see Usage Caps Will Now Apply To 56% Of Broadband Users). Cable operators and telephone companies are “simply infrastructure providers and they have to earn a return regardless of whether the service they provide is called ‘cable TV’ or ‘broadband,’” Moffett says. “As viewing shifts from cable TV as we know to Internet video, they have to be in an acceptable place to earn a return on the investment in their infrastructure.”

Regular TV isn’t going away — so as Internet consumption continues to climb skyward, cable (and telco TV) providers can’t simply reallocate that part of the pipe for data. The good news for cable operators is the cost of DOCSIS equipment is falling… but re-engineering the plant from four downstream channels dedicated to data to eight or 16 will still be costly (see Cable-Tec Expo: DOCSIS Gear Prices Falling As Bandwidth Usage Soars).

As Jasper points out, delivering 8 hours of video per day (roughly what the average American watches, per Nielsen) would chew up 480 Gigabytes per month — well beyond Comcast’s 250 GB monthly cap. A Morgan Stanley analysis puts the monthly data requirement even higher, at 600 GB (see Delivering HDTV to Typical Household Entirely Over-the-Top: About 600 Gigabytes Per Month).

But Jasper — even at such heavy levels of consumption — apparently believes there’s no rationale for limiting bandwidth consumption to Sonic.net’s users: “We upgrade links before congestion occurs.”

Interestingly, however, Sonic.net told one subscriber that the company couldn’t increase Internet speeds on its wireless network in Graton, Calif., because — get this — Netflix usage was too high and customers have been declining in the area, according to an Aug. 11 review posted on Yelp.com.

“Graton is a very challenging area, and particularly so as consumption has gone up due to Netflix, while subscriber counts and revenue have gone down,” Jasper wrote to the disgruntled customer (according to the disgruntlee). “I hate to send you to the competition, but have you checked to see if Comcast service is available at your location?”

Jasper posted a reply on Yelp.com adding that “Graton’s wireless service made sense before Comcast arrived. But, wireline will always beat wireless. As a result, it makes little sense to upgrade a wireless network when there is cable available. This is why I’m suggesting you check for Comcast availability.”

Huh. So when Sonic.net can’t or won’t deliver advertised speeds to customers, it’s a business decision — but when Comcast or AT&T put caps in place, that’s a protectionist move?

ISPs will have to change their pricing models to account for rapidly rising bandwidth consumption. Or, as Sonic.net did, they’ll be forced to tell customers, “Tough luck.”


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