Imagine how you would feel if you spent hundreds of millions of dollars on a new technology only to discover a few years later that your financial outlay was hurting your bottom line in a way you could never have predicted. That’s the situation the country’s largest cable carriers face today. Over the past two decades, they spent approximately $30,000 per square mile for the conduits and fiber optic cables on which a large part of the internet runs.
What they couldn’t have forecasted is that the way people watch their favorite television series and movies would fundamentally change in a stunningly short period of time. Now, an entire generation of customers learned a different way to consume media. People like yourself may prefer to enjoy a program on a 60″ television, but you know it’s almost as fun to hole up in your room with your laptop or smartphone. You don’t demonstrate the same consumer behavior that sustained the cable television business model over the past several decades. You are the disruption, and you’ve left cable companies scrambling to maintain their archaic revenue model.
Comcast Bites the Hand That Feeds It. Again.
Recently, Comcast made news when they announced a plan to force Internet power users to pay more for the honor of their service. As a multi-time winner as the Worst Company in the World, Comcast isn’t afraid of a little negative publicity. What their most recent decision represents, however, is a revolutionary attack on net behavior. They are pointing a digital gun at the very customers whose support keeps them in business. Comcast is figuratively biting the hand that feeds them, which might as well be their corporate motto.
The plan as it stands is for Comcast to penalize bandwidth hogs for going over an arbitrarily determined limit of 300 GB. Once a person hits this binary glass ceiling, they’ll receive an upcharge of $10 per 50GB used. There is no set limit to the penalties, meaning that someone who doesn’t carefully monitor their usage will receive a surprise once they receive their monthly statement. The intent for Comcast is to *ahem* encourage heavy streamers, most of whom are cord cutters, to switch to the Unlimited Plan, which doesn’t come with a usage tax. Of course, it also costs $30-$35 more per month, depending on your region of the country. That’s as much as a $420 annual rate hike for heavy-duty streamers, many of whom are cord cutters. All of this, mind you, is under the guise of “fairness“.
The 500-Channel Universe
Why is Comcast doing this? When major cable carriers laid their new copper pipes during the internet boom, they expected to double their potential earnings. They would be selling a new product, internet service, to existing customers. What nobody saw coming is that the internet BECAME television.
Billionaire John Malone, the former CEO of the massive tech conglomerate Tele-Communications Inc. and current chairman of Liberty Media, coined the phrase “500-channel universe” to notate a future with a seemingly infinite spectrum of cable channels. What he couldn’t possibly realize when he said this in 1992 was that the future would include YouTube, where tens of thousands of people sustain their own channels across a broad cross-section of topics.
Now that consumers have blurred the line between the dynamics of cable and internet viewing, the people who laid that cable are now their own competition. Streamers like you have cut the cord, because there’s no point in paying cable companies for products you watch on Hulu, Netflix, and Amazon. They created a product that is proving to be their own undoing. It’s as if dinosaurs sent an RSVP to a bunch of comets, cordially inviting them to splash down on Earth.
Comcast is in a precarious position. It’s understandable why they need to monetize what will become their most important business model. What they risk is difficult to evaluate in the short term. At worst, cable companies operate in an oligopoly with relatively fixed pricing. In most situations, they’re either functionally or actually monopolies. Comcast is especially powerful since they are the largest cable broadband provider in the United States, reaching 113 million potential customers in a country of 320 million people. At this point, they feel they’re impervious to criticism.
The company’s sole focus is on the bottom line and how it impacts their stock. With a market cap of roughly $150 billion, they’re one of the 35 most influential companies in the world. From a legal perspective, nobody will know if what they’re doing is okay for years to come, presumably after multiple class action lawsuits. From an ethical perspective, the situation is more interesting. Should Comcast have the right to have data caps?
The Comcast Argument: Why Data Caps are Fair (aka Greed is Good)
Let’s play devil’s advocate for a moment and evaluate the pros of data caps. From Comcast’s perspective, there’s an obvious justification for the charges. Comcast either paid for the broadband access or they acquired the companies who did. One of the fundamental laws of capitalism is that someone should charge what the market will bear. With tens of millions of customers, Comcast undeniably offers an in-demand product. They have the right to charge whatever they feel is fair.
Power users do hog more bandwidth than average customers. There’s a reason why the people outraged by this news are generally the ones likely to be impacted. Most people know enough about their bandwidth consumption to realize this won’t affect them. I would maintain that’s a short-sighted point-of-view, but we’ll evaluate that line of thinking more under the cons section. The point for now is that Comcast would argue it’s reasonable for a business to charge more when they provide more services.
Comcast’s “fairness” argument goes like this. Think about the situation for other forms of business. If you eat at a restaurant, you’ll have a higher bill if you eat an appetizer and dessert than if you stick to entree. A family of five will pay more than a single person would. If you buy a computer or smart device, the more powerful units cost more money. With regards to smart devices, internet access comes with an additional charge. Even if you go to Home Depot, what you pay is much different than what a member of a construction crew would. The services you need are much simpler and thereby less expensive.
[Ed. note: The reality is, of course, much different as it isn’t really costing Comcast any more money if you exceed your data cap, but more on that later]
An Inconvenient Internet Truth
The uncomfortable truth here is that people have a double standard with regards to internet consumption. It’s a lingering remnant of the premise that information should be free, a lovely concept that I personally support. Reality absolutely crushed it once businesses realized that there were hundreds of billions of dollars available on the internet. People still cling to that notion that they should be able to use the internet as much as they want for the same price. There’s a danger in that logic.
To enjoy internet access, someone has to foot the bill. The companies providing those services connect you to the world and enrich your life. They have the right to charge you a reasonable fee, even though the extra bandwidth you utilize as a power user costs them little if anything. You can read an enlightening examination of the economics of internet usage for broadband carriers here.
Despite the numbers above, companies such as Comcast aren’t criminals when they charge more for the customers who use more data. People conveniently ignore that they were once customers themselves. In setting up broadband access, they had to purchase all the raw materials and land required to build the infrastructure. They didn’t pay a single price for everything. When they needed more material and more land, they had to spend more money. That’s an underlying mechanic of capitalism. It’s not wholly unreasonable for them to use the same logic with their customers. It’s just…obnoxious. And opportunistic. And desperate. But there’s one thing it’s not…
Not Technically Illegal…Yet
The other pro is that as far as anyone can state with confidence right now, what Comcast wants to do is legal. Attorney Krishna Narine offered his thoughts on why this point is yet to be determined explicitly. He notes:
“The antitrust laws do not provide “bright line” test as to the whether ISP’s have monopolized or attempted to monopolize. Rather, a court will consider whether a company’s policies and practices promote or inhibit competition. However, this will be balanced with that company’s legitimate efforts to compete against the other players in its marketplace. Courts almost universally accept the notion that the antitrust laws protect competition, not competitors. Whether by using data caps, Comcast Corp. and other major ISP’s have stepped over the line and engaged in anti-competitive conduct is still a hotly debated subject. In the meantime, the FCC will gather a significant amount of data which will relate to this issue.
The FCC’s 2015 Open Internet Order requires ISP’s to disclose their commercial terms for prices and data cap allowances, performance by geographic area, average performance over a reasonable time and during peak usage, and network management practices including degradation of service. Much of this information, is the type of data used to analyze markets for monopolistic activity. (sic)”
The People’s Argument: Why Data Caps Suck (aka Stopping the Cap)
Clearly, we’re in the early stages of potential class action lawsuits that could take years to settle. And that brings us to the cons, which is basically everything else about the topic. People potentially impacted by pricing tiers believe that all attempts to gouge power users of internet consumption are unethical.
Phillip Dampier felt so strongly about the immorality of the issue that he started a website, StopTheCap.com. With regards to the current legality, he notes that even though there aren’t laws against bandwidth caps yet, there are other factors in play. “The FCC does have potential enforcement authority under Title II, under which the FCC declared broadband a telecommunications service subject to FCC oversight and regulatory powers.”
Do Not Pass Go, Comcast Will Collect Your $200
Dampier feels most strongly about the topic that impacts most consumers. At worst, broadband carriers currently enjoy duopolies and many even claim monopolies. The lack of competition in the marketplace means that companies such as Comcast can enforce whatever charges they want since customers lack the ability to shop around for better pricing.
He notes, “If you were shopping for a new computer, there is more than enough competition to give consumers a wide range of choices at very competitive prices. But if you want to connect that computer to the Internet, in most cases you are limited to choosing between only one or two providers. As long as competition remains lacking, it is inappropriate to continue allowing a deregulated market for a utility service. ”
Another analyst, Jason L. Bauman of Trinity Insight, adds that carrier exclusivity is a huge issue along those lines: “If they create a data cap, Cable Company B can’t come in and offer unlimited/no cap to that customer because Comcast has exclusive rights to serve cable to that customer.
Comcast Is the Proverbial Troll Under the Bridge
A particularly interesting take on the ethics of Comcast’s attempt comes from Michael Tribolet, the CEO of Yip TV. A former President of Vonage, Tribolet is an expert on the topic of internet connectivity. He notes that internet access is best viewed as a tollway.
“Just as it used to be in the telecom space of a local call vs. a long-distance call, it eventually became ‘all distance,’ with distance out of the equation. The same should hold true today on data usage. No one should enforce any data caps. As a user, you should be free to roam the internet, especially if you paid your toll to access the ‘freeway.'”
That’s the crux of the con side. Internet users pay to play by providing carriers like Comcast with recurring revenue. Once a person crosses a toll bridge, they don’t have to pay extra per mile traveled after that. Similarly, the situation is best encapsulated by thinking of it as an all-you-can-eat buffet restaurant. The whole point of the operation is that for one fee, you get everything you need to sate you. Comcast is almost trolling their consumers by trying to charge more for dessert after everyone finishes their meal.
The Escalating Bandwidth Math
Finally, there’s a critical mathematical side to the ethical debate. 300 gigabytes represents a large amount of bandwidth today, but your usage could escalate quickly. Even if it seems reasonable for Comcast to charge more for people exceeding that much bandwidth now, consider the evolving nature of internet content. In 2000, an image file was about the largest thing anyone would ever download. Even the largest of them was only a handful of megabytes. Fast forward to today. An HD movie download takes a few gigabytes of storage space. That’s exponential growth during the early 21st century.
The troubling notion is that the expansion rate is operating at an explosive ratio. 4K movies can take 160 GB to download. In other words, retrieving two of them automatically places a consumer in the power user tier by Comcast’s measures. Now consider that 8K already exists and has just a decent chance to become the next accepted HD format, bypassing 4K entirely. 8K requires 48 GB per second transfer speed in many instances. In six seconds, a user would already cross the threshold for upcharge. Think about your current streaming usage and swallow hard at how quickly the charges would add up to maintain your current service.
That’s the scariest aspect of what Comcast is attempting to accomplish here, the one that proves that they’re playing a long con on their customers. By persuading people that 300 GB of storage is a lot now, they’ll have their foot in the door on future tier increases. If people don’t stand up to them at this entry point, Comcast will keep pulling the same stunt over and over again, spiking the cost of internet usage while scapegoating internet power users all the while.
Comcast is simultaneously victimizing and overbilling its best customers. It’s hard to imagine anything less ethical than that.
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