scarcity

Report: Data Caps Help Carriers Rake In Huge Profits

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In case you weren’t quite certain why wireline and wireless carriers were capping your data, it’s not about bandwidth. Instead, they are able to charge a premium for faster speeds and more data, thereby raking in profits over and above what they’ve gotten in the past. In short, write Hibah Hussain, Danielle Kehl, Benjamin Lennett, and Patrick Lucey of the New America Foundation:

Internet service and mobile providers appear to be one of the few industries that seek to discourage their customers from consuming more of their product. The reason for this counterintuitive business model is that in the noncompetitive US marketplace, it is highly profitable.”

The paper itself goes into the history of bandwidth caps and isn’t saying much we didn’t already know. Basically the false scarcity imposed by service providers helps them maintain high profits while blaming data hogs. As data usage went up, however, the cost of providing that data went down.

Screen Shot 2012-12-19 at 3.32.21 PM

This combination of caps and higher prices also applies to services like text messaging. Even though “the cost a carrier incurs by transmitting an SMS message has not increased in recent years,”carriers have continued raising prices and imposing limits.[8]As with data caps, the prices charged to consumers do not correspond with the costs for carriers.

ISPs often claim that caps are necessary to curb “excessive use” and only affect a small fraction of users. Although some providers are reexamining their data caps policies, many of the limits imposed several years ago have largely remained static, even as typical household bandwidth consumption has substantially increased. In 2008, Comcast reported that its median residential broadband user consumed 2.5 GB of data monthly.[9]In 2012, Comcast reports that this number has quadrupled to a median monthly usage of 8-10 GB per consumer.[10]Other sources report even higher usage numbers. According to the Federal Communications Commission’s (FCC) Measuring Broadband America report, the median cable broadband user in the United States consumed about 28 GB a month in mid-2012.[11]As new Internet applications and devices continue to be created, yesterdays so called “bandwidth hogs” are today’s typical users.

We all know the carriers will come back with the old “But infrastructure costs money!” argument but considering the slow roll-out of FiOS and related high-speed data services, they’re clearly sitting on their cash hoard until enough of us complain. As the authors note, “Data caps encourage a climate of scarcity in an increasingly data-driven world.” And scarcity makes money.

via Ars