In the name of promoting online innovation and protecting consumers, U.S. Senator Ron Wyden (D-Ore.) this week introduced a law that would restrict ISPs' use of data caps -- limits on how much customers can upload and download on their smartphones and computers -- solely to addressing network congestion. The proposed legislation, called "The Data Cap Integrity Act," comes in the wake of a study from non-profit group The New America Foundation, which concluded that data caps on broadband usage serve only to bilk customers and stifle online innovation, rather than ensuring that Internet data travels the network lines unfettered.
"This bill is intended to help consumers manage their data more effectively and ensure that data caps are used only to serve the legitimate purpose of addressing congestion," Wyden said in a statement, adding that "data caps should not impede this innovation and the jobs it creates."
Through the Data Cap Integrity Act, the FCC (Federal Communications Commission) would establish industrywide data measurement accuracy standards as to how ISPs measure data usage; the law would also give the FCC the power to ensure that data caps are designed to manage network congestion, "rather than [to] monetize data in ways that undermine online innovation," according to Wyden.
The law would require ISPs to provide consumers with tools for managing their data consumption, and it would prevent ISPs from discriminating against any content; that is, giving favored treatment to their own services over similar services from competitors. "Data caps ... run the risk of undermining innovation in the digital economy if they are imposed bluntly and not designed to truly manage network congestion," Wyden said.
According to The New American Foundation's study, data caps don't address network congestion as ISPs have claimed. That sort of congestion stems from high levels of traffic on networks during peak hours; the critical factor is the time of day when a person uses data, not how much data a person consumes over the course of a month. Even Comcast admitted to the FCC in a disclosure document that data caps "do not address the issue of network congestion, which results from traffic levels that vary from minute to minute."
Rather, the study found that data caps serve to potentially undermine competition: They serve to protect carriers' legacy services by discouraging consumers from accessing content online that they traditionally consumed offline. For example, customers are turning to services like Netflix, Hulu, and Crackle to watch movies and shows, rather than turning to standard cable.
"[O]ver the longer term, consumption-based billing could reduce the attractiveness of over the top video options (e.g., Netflix and Hulu), as the economic attractiveness of such over-the-top options could be partially offset by a [broadband] bill that is higher, due to [broadband] overage charges that would be driven by large amounts of data being streamed via a customer's [broadband] connection," cautioned a 2011 presentation from Credit Suisse.
In challenging the law, expect ISPs to point to a report (PDF) out of Michigan State University, funded by the National Cable & Telecommunications Association. According to the report, written by Steven Wildman, a professor of information studies, "the effects of well-designed [usage-based pricing] plans on consumers are likely to be beneficial, as are the effects of UBP on investments in the broadband infrastructure."
Funded by The National Cable & Telecommunications Association, the paper -- titled "The Economics of Usage-Based Pricing in Local Broadband Markets" -- also argues that the revenue ISPs garner from data plans "will likely contribute to better cash flows and stronger incentives to invest in broadband plant, both to improve the quality of service for current customers and to extend networks into unserved and underserved territories."
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