Enough about data caps: They’re a terrible idea

In a recently published piece, Prof. Daniel Lyons of the Boston College Law School argued that broadband data caps are a reasonable form of price discrimination. Lyons believes that data caps allow ISPs to more equitably distribute network costs among users based on how much they value internet access. He then goes on to suggest the best model of price discrimination comes from the airline industry, and that ISPs would be wise to learn from them.

Okay, wait a minute. The airlines? I had to read that twice to make sure Lyons was actually recommending that companies like Comcast and Time Warner – you know, two of the lowest-ranked U.S. companies in terms of customer satisfaction – ought to be taking marketing tips from the industry that rivals them for most-hated status. (Interestingly, according to the American Customer Satisfaction Index, the airlines are third from the bottom, followed by… the cable industry!)

Opaque pricing models are opaque for a reason

This seems to me to be just awful advice (Disclosure: see below). One of the primary reasons consumers hate the airline industry as a whole is precisely because of standards of pricing that make no sense, are unnecessarily opaque and completely unpredictable. Certainly, there are other issues consumers gripe about, like on-time arrival (something they also share with cablecos, who sometimes, maybe show up between 8 and never), but at best, their pricing model simply makes no sense to the consumer, and at worst seems suspect and predatory.

Consider the confounding and inconsistent factors consumers have to wrestle with when trying to figure out how they can “use” a gigabyte (or, for many consumers, trying to figure out what one even is). How do you know when you’ve used one? Or are close to using one? If some things are “under the cap” and other things “count,” how can you tell? And why is that so? Will the number of gigabytes of, say, a streamed movie, be listed along with movie ratings and reviews when searching for one – and if not, how will you know if you’re “allowed” to watch it? Do security updates count? Skype or Facetime? The home Wi-Fi network that your neighbor’s kid set up for you? And what happens when you go over the cap? Will my TV suddenly turn off?

Make up your mind: Is it costs or capacity?

In January 2013, National Cable and Telecommunications Association (NCTA) president Michael Powell clarified in a speech that cable’s interest in data caps was no longer (or never was) about network congestion but instead about pricing fairness.

I had to read that one twice, too. So what of the angst over bandwidth hogs and bytes and bits and network management and capacity constraints? That’s not actually true? Well, okay, if the new argument is about how companies recover their investments and fairly allocate those costs then we can all agree that is quite reasonable. But if that is the case, then changes the debate to one about pricing (costs) and not about capacity (caps).

There are plenty of ways to address pricing that fairly charges customers without requiring them to pursue an engineering degree or a private investigator to figure it out. Let’s be clear: Broadband is not like electricity, where utilities must first generate the power they deliver to customers, requiring them to charge heavy users more because it costs the utilities more to serve them. Even the ISPs themselves allow that marginal costs for additional bandwidth are negligible between light and heavy broadband users.

A pricing model that works: the current one

Indeed, ISPs already have a way to offer consumers different price options for internet access – it’s called speed. If you are a comparatively light internet user who goes online primarily to send email and surf the web, you can buy a lower-speed tier and save yourself some cash. If you don’t see daylight much, and use your connection to watch a ton of online video, you’ll probably need to upgrade to (and yes, pay for) something faster.

Virtually all ISPs use this pricing model already which, it turns out, works pretty well. Most consumers don’t know a gigabyte from a hole in the ground, but they do know when their internet connection is slow. Pricing by speed offers consumers predictability on their monthly bills and an understanding of what they’re paying for. With data cap-based “penalty” fees there’s a big chance they’ll instead get a nasty bill shock at the end of the month and then wonder what on God’s green earth they did to deserve it.

Disclosure: The author’s company, Glen Echo Group, has a number clients involved in the broadband field representing a spectrum of interests: from the Alliance for Broadband Competition, to Gig U,. to Google, to Sprint, among others. See a full list here: glenechogroup.com.

Maura Corbett is the president and founder of the Glen Echo Group, in Washington, D.C.

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