In a new report titled “Artificial Scarcity: How data caps harm consumers and innovation,” the think tank Open Technology Institute takes an in-depth look at how Internet providers’ caps on data impact broadband usage. The group calls on the FCC to launch a “serious inquiry” into data cap policies.

“In particular, we explain how data caps can make it harder for consumers to make informed choices; decrease the adoption and use of existing and new online services; and undermine online security,” OTT says.

“It is also increasingly clear that data caps have a disproportionate impact on low-income and minority populations as well as groups like telecommuters and students. In the conclusion, we urge the Federal Communications Commission (FCC), particularly as the new Open Internet Order goes into effect, to open up a serious inquiry into whether data caps are an acceptable business practice.”

The new report is a follow-up to an initial study done in 2012.

For an overview of the report, here is the introduction:


We increasingly rely on the web and Internet-enabled devices for virtually every aspect of our daily lives, from our jobs and leisure activities to the provision of vital social services. As more of these activities move online — in addition to the explosion of new applications and services that could not have existed without the Internet — consumer demand for faster speeds and more data continues to grow. The Internet’s ability to enrich our lives in so many different ways is premised on the notion that the network remains an open platform of abundance, not scarcity.

Several recent consumer victories promise to enhance the protection of the free and open Internet in the United States, including the Federal Communications Commission’s (FCC) historic network neutrality order and the critical review that lead to the eventual collapse of the proposed Comcast-Time Warner Cable merger. Unfortunately, other threats remain — including the proliferation of data caps on home and mobile broadband service, which can lead to an array of consumer harms. Through an examination of the rationale behind data caps, this paper explains that claims of congestion and fairness are largely unsubstantiated, and are actually an effort by major Internet service providers (ISPs) to mask economic incentives and gloss over harms to consumers and innovation.

The transition from dial-up Internet to broadband service in the early 21st century resulted in a widespread increase of flat-rate pricing systems, where users pay a simple monthly fee for unlimited network usage regardless of the amount of time spent online or data consumed. But in the past few years, a number of ISPs have explored and adopted usage-based pricing schemes, where customers typically pay a monthly fee for a limited allotment of data. Generally speaking, “data caps” are limits on how much data an individual subscriber — or a group of subscribers on a shared data plan — can download or upload in a single month or billing period. Initially, some Internet providers implemented “excessive use” policies where an account could be suspended or terminated if a customer exceeded his or her monthly limit. But “soft” data caps are now more common, where a customer who exceeds the limit will be subject to fees for additional chunks of data. Some mobile data providers implement a variation on a soft data caps known as “throttling,” where if the user exceeds the cap, connection speeds are slowed for the remainder of the billing period.

The economic and competitive concerns about data caps are well documented. Failed trials demonstrate that data caps are not popular with consumers, nor are they an effective tool to manage network congestion, particularly on wired networks. In 2012, New America’s Open Technology Institute (OTI) published a study on the emergence of data caps and other usage-based pricing schemes on both wired and mobile Internet connections in the United States. It found that data caps, especially on wireline networks, are hardly a necessity, and instead appear to be primarily motivated by a desire to further increase revenues from existing subscribers and protect legacy services (such as cable television) from competing Internet services. There is little technical rationale for data caps, especially since congestion occurs in moments of peak demand, while data caps discourage usage at all times, even during off hours, when the network has plenty of capacity.

At the beginning of 2013, OTI noticed a change in rhetoric among ISPs, particularly within the cable industry. Attempting to win over a skeptical public, they shifted their rationale for data caps away from congestion management and focused instead on a narrative about promoting “fairness.” But those arguments also proved to be flimsy, especially in the absence of evidence about how an increase in data caps would actually help light users save money. Even the CEO of Time Warner Cable has admitted that data caps and discounted offerings for light users were generally quite unpopular

Two years later, the “fairness” rhetoric touted by the cable companies and other ISPs remains unsubstantiated. American consumers continue to pay high prices for Internet service, and the arguments that usage-based pricing might mean some customers would pay “less for less” appear to be empty. For example, while Comcast and Time Warner Cable offer discounts for “light” data users, customers of both companies get just a few dollars back on their monthly bill for a significant reduction in use, and may face stiff penalties if they go over the reduced threshold in a given month. Time Warner Cable gives customers $5 off for using less than 30 gigabytes (GB) and $8 off for using under 5 GB,9 while Comcast’s “Flexible Data” option provides a $5 credit for using 5 GB or less of data, but then charges $1 for each additional gigabyte above that threshold. These onerous terms help explain why such plans are unpopular with consumers. As the Government Accountability Office (GAO) summed up in a November 2014 report on usage-based pricing: “The extent to which mobile and fixed Internet customers have benefited from low-cost low-data plans is unclear at this time.” The problem is exacerbated by the lack of consumer choice among broadband providers — if customers are not happy with their ISP’s usage-based pricing scheme, they often lack alternative providers.These usage restrictions are a manifestation of the concentrated market power of ISPs in the broadband age.

Despite a variety of arguments against them, data caps and others forms of experimental usage-based pricing continue to be implemented on both home and mobile broadband service. Comcast, for example, has reintroduced and expanded its data usage trials, limiting customers in certain geographic areas to 300 GB per month and charging $10 for each additional 50 GB that they use. Other providers have also followed suit … And on the mobile side, we have witnessed the introduction of a variety of new usage-based pricing schemes, including a shift from individual plans to “shared” family data plans, where the activity of several users counts against a single monthly bundle of data.

According to the GAO’s November 2014 report, all four of the mobile providers surveyed and seven out of the 13 home broadband providers implement some form of data caps. The report further asserts that “the number of providers that utilize UBP and, therefore, the number of Internet customers that are affected by it, could grow in the future.”

The ongoing proliferation of data caps signals a need to address the issue before it results in sustained consumer harm. While some researchers argue that usage-based pricing may be necessary to manage congestion and deal with the coming data flood, most analysts, including those at the GAO, are increasingly skeptical of this rationale. In this paper, we examine both the quantitative data and discuss the research that demonstrates the behavioral impact of these policies. In the conclusion, we explain the current and potential consumer harms stemming from the spread of data caps and urge the FCC — particularly in light of its recent net neutrality order — to open up a serious inquiry into whether data caps are an acceptable business practice.

Read the full report at: