Back in early 1990s, you couldn’t go anywhere without stumbling across an AOL “Internet starter disc.” Whether on an airplane seat, a high school cafeteria tray or tucked inside a pizza box, AOL’s blitz marketing campaign was pretty much unavoidable. As we recall, each individual disc had a big number stamped on it, indicating the amount of hours of free Internet access you had before you had to pay for a subscription (700 hours, 1000 hours, 1025 hours, you get the picture). Back then, the fact that AOL was offering Internet access in terms of hours wasn’t weird. In fact, charging by the hour was the norm. It wasn’t until the mid-’90s, when this all changed. AOL introduced its unlimited plan (along with the Buddy list) and the rest is media history.
Paying for every hour you spend online is a form of usage-based pricing—a model where price is determined by how much of the service you consume. Usage-based pricing is a model that is common in many other industries. For example, when you get on an airplane, you have the option of paying for a first-class ticket in order to get bigger chairs, and more privacy. On the DC Metro, you pay according to the distance you travel.
For the last couple of decades, we’ve gotten used to paying one price for an unlimited number of hours online. Many of us leave our email open all day, watch YouTube videos of our favorite bands for hours, and download albums whenever we feel like it. And when the iPhone was introduced in 2007, it came with an unlimited data plan, upholding the decade-long user expectation of being able to go where you want online without worrying about how much each website visit would cost.
But the days of unlimited data plans may be numbered. Both wireless and wireline providers are now experimenting with usage-based pricing in the form of data caps—limits on the amount of data you can upload or download per month. Most ISPs have instituted some form of hard or soft caps.
If customers go over a soft cap, they are subject to overage charges—meaning you have to pay a lot more if you go over the limit. In the case of a hard cap, a subscriber’s Internet service can be completely cut off. The idea that the Internet is becoming a scarce and limited resource is so widespread, that even AT&T’s chief executive Randall Stevenson has expressed “regret” that the company ever offered an unlimited data plan with the iPhone to begin with.
Given the growth of streaming media and mobile phone use, the cost of moving data has become increasingly contentious. The Federal Communications Commission (FCC)’s Open Internet Order implicitly authorized usage based pricing through data-caps in order to protect “lighter end users” from subsidizing the heavier data users—aka the “bandwidth hogs.” However, since most service providers have adopted data caps as their standard pricing model, several public interest groups and law makers have demanded that the FCC examine the effect that data caps might have on broadband access and online innovation. Not long ago, we joined Public Knowledge and New America Foundation’s Open Technology Initiative (OTI) to propose the FCC take a closer look at data caps. Even though the Department of Justice has launched an investigation and legislation has been introduced, there hasn’t been much movement to provide protections for consumers who may be negatively affected by caps.
The FCC’s Open Internet Advisory Committee’s first report does little advance definitive policy action on the data caps front. The report lays out some perspectives on data caps from users, from Internet Service Providers (ISPs), to edge providers (think companies like Netflix), but doesn’t make suggestions as to what a “level playing field” might look like. As Public Knowledge recently said on the report: “We still don’t know much about data caps.”
September 9, 2013 saw opening arguments in the Verizon case that will put the Open Internet Order—and net neutrality—on trial. FCC commissioner Ajit Pai has stated that an FCC victory in this case would be a “first step” towards a data caps policy. Since data caps have the potential to affect media-makers (including musicians) more than anyone else, we thought it was a good time to talk about how caps been employed and what we can do to ensure that they don’t hinder a healthy creative ecosystem. The first part of our investigation will explore “wireline” data caps.
What are Wireline Data Caps?
Since 2008, cable companies such as Comcast and Time Warner have placed data caps on their wireline service. Comcast’s 250 GB “hard cap” was originally intended to curb “excessive use” on their network. Data caps became a national headline when Seattle gaming consultant Andre Vrignaud got booted from Comcast’s network for going over the cap. Vrignaud, a “photographer and audiophile,” used more than 250 GB through uploading large FLAC format music files and RAW photos to Amazon’s then new cloud storage service.
Even though most users don’t even come near a 250 GB—the average cable subscriber uses 30 GB a month—Vrignaud’s story raised concerns over how much ISPs were using data caps to control their pipe. The growth of cloud applications and services present many new and exciting options for artists to share fully-licensed music without having to resort to unauthorized filesharing. If music fans like Vrignaud could be blocked by ISPs for using perfectly legal services, this could mean trouble for artists in the future, who are increasingly dependent on the cloud for storage and collaboration.
Other wireline ISP’s have followed Comcast’s lead including AT&T U-Verse, Cox, Centurylink and others. You can check out a whole grid of different wireline ISP caps here. Comcast’s most recent experiment with small 5 GB monthly caps, shows the company’s continued interest in implementing data-based pricing. But why are cable companies using these caps in the first place?
When Vrignaud’s cable got cut off for going over the cap, Comcast justified its decision as a congestion management tactic, claiming that “If someone’s behavior is such that it degrades the quality of service for others nearby—that’s what this threshold is meant to address.” This suggests that heavy-media users like Vrignaud act as “bandwidth hogs—using up all of the bandwidth so that no one else can have any.
In reality, network congestion happens more like a traffic jam—it doesn’t matter how much you drive, but it matters where and when you get on the highway. In other words, one user who streams video and uploads large media files to the cloud at non-peak hours should not affect the overall performance of the network. Data caps would be the same as enforcing a law that said you could only drive your car a certain number of miles per month in order to help prevent traffic jams. Wireline networks can support a lot more data than mobile networks, and should be able to handle the current level of network traffic.
In defense of data caps as a network management strategy, TWC Executive Vice-President of Corporate Strategy Kevin Leddy has claimed that high-volume users are also the ones blocking the network at high-volume times of day. He said,
There’s this theoretical possibility that your very heavy consumers are not heavy consumers at peak and therefore charging for total consumption is unfair because they’re not putting a burden on at peak. But in fact, heavy consumers are heavy consumers at peak.
However, until more hard data appears, it is not clear why companies are using caps as a network management strategy.
As time has gone on, the justifications for data caps has shifted from network management to this concept of data caps as a form of fair tiered-pricing. Both former FCC Chairmen Michael Powell and Julius Genachowski have spoken favorably about data caps at various National Cable and Telecommunications Association events.
Genachowski said that “usage-based pricing could be healthy and beneficial” to the broadband industry, despite also expressing “concern” over the use of caps later that year. Powell, now the President of the NCTA, spoke of data caps as a “fair” usage-based pricing strategy: “Our principle purpose is how to fairly monetize a high fixed cost.”
Indeed, the cable industry seems to be lending its support to data caps as a standard form of usage-based pricing. The NCTA has funded research to support that usage-based pricing is pro-consumer. The study claims that fixed Internet prices will harm “low volume and low income customers,” and that a usage based pricing model has the potential to offer broader access. But there are many concerns with usage-based pricing that the cable industry has not addressed.
Data Caps Aren’t User-Friendly
Usage-based pricing—where the customer pays according to how much they use the service—only works if the customer knows what service they are getting. Take airline tickets for example: when you pay extra for a first-class seat, you know that you’re getting a bigger seat and more privacy. The idea is that breaking up flights into two tiers—first class and coach—is a better way of selling tickets than raising the price of an airline ticket so that everyone pays the same amount.
Before data caps, usage-based pricing in Internet access was done in terms of time and speed. When AOL sold Internet access in terms of time spent, users understood the service they were paying for. $19.95 guaranteed you 5 hours of access to do whatever you want.
We are also used to usage-based pricing in terms of speed. Most wireline ISPs offer different billing plans in terms of the speed you want. Users can immediately recognize how speed affects their web experience. For example, when you are using a dial-up speed, certain websites might load slower than others. When you buy a higher speed connection, videos load faster, music downloads more quickly—it’s more clear what speed gets you in terms of web experience.
Whereas time and speed are pretty straight forward, many people don’t understand how data works online. Most aren’t aware of what different activities online cost in terms of data: how does streaming a couple of albums compare to listening to a concert video on YouTube? Even when users do have some sense of how data works—video generally consumes more bandwidth than streaming audio files—there really is no good way to accurately measure the data being consumed.
Data Caps Aren’t Creator-Friendly
The truth is that managing network congestion in terms of monthly data caps instead of more time-sensitive tools not only isn’t user-friendly but isn’t artist-friendly. To varying degrees, media-makers earn their livelihood from their intellectual property. Because keeping your work secure yet available is so important, many artists use cloud-services as a way to backup their data. Typically, however, cloud services automatically back-up data at off-peak hours, which doesn’t create a lot of network congestion but can still gobble up that monthly cap. There has to be a better way to manage network congestion that is more time-sensitive and therefore more attuned to artists’ needs.
Data Caps Aren’t Good For Online Innovation
As organizations such as Public Knowledge and others argue, most consumers prefer flat-rates to usage-based pricing—even if it means paying more. This consumer preference seems to have been a factor in AOL’s decision to switch to the unlimited plan. Public Knowledge’s report quotes AOL’s founder Steve Case, who claimed that customers found it stressful to consider the many transaction costs that go with usage based pricing:
What was the biggest complaint of AOL users? Not the widely mocked and irritating blue bar that appeared when members downloaded information. Not the frequent unsolicited junk email. Not dropped connections. Their overwhelming gripe: the ticking clock.
Ultimately, time-based usage plans create an online environment of scarcity. With the idea of this giant “ticking clock” always present in mind, it makes people want to use the Internet less. In 1996, the unlimited plan rapidly expanded both AOL’s subscriber base and the amount of time people were spending online. An unlimited-Internet experience led to unprecedented innovation online—including the growth of online video and social media that helps musicians and other artists connect to fans everyday.
Data caps would be like a step backward instead of a step forward. The universal implementation of data caps would fundamentally limit the way people access media. The most bandwidth intensive uses of Internet are all media related—whether it’s uploading music files to the cloud, or watching music videos. Caps have the potential to create an online environment in which people are afraid to engage in media-intensive activities—something the web has facilitated since the mid-’90s.
How Data Caps Are Possibly Good For Cable Companies
Even though data caps may create an environment of scarcity online, the cable companies have a huge incentive to make it more difficult for consumers to access bandwidth intensive applications such as video. As the Open Internet Order acknowledges that broadband providers “have incentives to favor their own affiliated content” over other edge providers such as Netflix. Indeed, while Comcast implements data caps on their wireline service, they do not enforce caps on their Xfinity browser or Xbox app, which makes it less expensive for their subscribers to watch Xfinity content, rather than Netflix or Hulu. Netflix Chief Reed Hastings has called Comcast’s caps a violation of net neutrality principles, saying that, “Comcast should apply caps equally or not at all.”
When it comes to choosing wireline providers, most consumers have very few options. Most Americans can only choose between two wireline providers, with Comcast and AT&T commanding the market share. Comcast CEO Brian Roberts has even directly commented on Comcast’s monopoly power in this market:
And so each of the last two years, we have had modest increases in the cost of the broadband service, and yet we’ve had tremendous sales. We’re 33%, 31% penetrated. We hope someday all of America has broadband. So the goal would be 100 or 90 [percent take rate]. We have one competitor [PDF].
Given Comcast’s power relative power to other ISPs, there’s nothing stopping the company from implementing caps and raising prices. Cardozo Law School professor Susan Crawford writes, “data caps are excellent tools with which to make as much money as possible from an existing monopoly facility.” Data caps raise concerns for lawmakers and public interest groups because they have the potential to be cash cows for cable companies, at the expense of the users.
Some Solutions (For Wireline, Anyway)
For musicians working with digital formats, cloud-based storage and media applications have become important tools for both managing their intellectual property and collaborating with other artists. On wireline networks, it should be possible to support this growth of Internet traffic without overburdening the network. We at FMC think there should be more transparency—users should have more tools to monitor their data use, and ISPs should be more explicit about how and when data caps are enforced.
Additionally, the last thing we’d want is for the costs of network improvement to be passed on to musicians and artists, who face many economic challenges as it is. Some content companies have turned to Content Delivery Networks (CDNs) to carry some of the extra traffic. Netflix has even created its own CDN. However, the idea of content companies paying for faster speeds raises other concerns. Currently, many ISPs accept payment from content companies to gain preferential treatment—a practice that sounds like a violation of the Open Internet rules but is seemingly technically legal according to current policy.
One way to gain unmetered wireline access is through community broadband and fiber-to-the-home (FTTH) networks. Cities such as Chattanooga, Tennessee and Bristol, Virginia offer some of the fastest connections in the country and are managed by the local electric companies. Google has started offering fiber networks in cities such as Kansas City, Missouri with plans to expand into Austin, Texas.
The New America Foundation’s Open Technology Initiative’s Patrick Lucey says about fiber networks:
For everyone to be able to do what they want to do online, fiber to the home is definitely a way to go to encourage local projects to build out that critical local infrastructure.
OTI has done great work to support the development of community networks. In contrast to a capped broadband connection, both public and private fiber networks create an environment of abundance online that is generally a good thing for online music and video.
Fiber networks are also great for creating more competition in the wireline industry, and getting companies to slash their rates. In Provo, Utah, one of the few cities where Google Fiber is offered, Comcast has already lowered prices on its service. In anticipation of Google Fiber’s launch in Austin, TX, Time Warner is offering their Austin customers free WiFi.
In the ’90s, the main catalyst for AOL’s decision to offer an unlimited plan was competition with other providers, namely AT&T WorldCom. Unlike those AOL discs, data caps may be here to stay, especially on the mobile side (more on that later). But more competition in broadband is always a good thing in terms of offering fair prices for high quality service. Part Two of this post will go into more detail about wireless caps, which are of critical importance to the future of the online music ecosystem.