Genachowski Ignores Harm Of His Data Cap Sentiments
Genachowski Ignores Harm Of His Data Cap Sentiments
Genachowski Ignores Harm Of His Data Cap Sentiments

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    There probably was no great need for Comcast to raise the
    usage caps on its broadband service, as it did last week from 250 gigabytes (GB)
    to 300 GB per month.  If the company
    thought for an instant that the modest increase bought it any good will from
    its theoretical regulators, it needn’t have bothered.

    The Federal Communications Commission (FCC) doesn’t
    care.  As FCC Chairman Julius Genachowski
    told the National Cable and Telecommunications Association (NCTA), data caps
    are simply another “business model innovation.”  Genachowski said that pricing based on usage
    “could be healthy and beneficial” to consumers.  (Cable is fine with that, as is AT&T.)

    It could.  Or it could
    not.  The problem is that the FCC really
    doesn’t know and doesn’t display any curiosity to determine the basis on which
    Comcast, or any other company, are establishing, evaluating or adjusting the
    caps. Public Knowledge has asked the Commission repeatedly at least to ask those questions, but the Commission has repeatedly declined to do so.

    While Comcast decided to raise its
    caps, Verizon, Comcast’s partner in the Grand Telecom Realignment in which
    Comcast and its cable partner get the land while Verizon rules the air, has
    decided to impose caps on a group of its customers who thought they had been
    exempt.  Those would be the “unlimited”
    data customers who last summer were promised they wouldn’t be put under the
    cap.  Now they are, and under the most
    curious of circumstances.

    It turns out that Verizon customers will have the cap put in place
    when they upgrade their wireless plans from the current 3G to the super-fast 4G
    (aka LTE).  The super-fast service uses
    spectrum much more efficiently than 3G. 
    So in order to gain the efficiencies of having customers use the new
    service, the Verizon incentive is to give the customers a cap on their data.  That makes no sense.  Of course, Verizon has an alternative.  If a customer wants to upgrade and keep
    his/her data cap, he/she can do so, as long as they pay the vastly inflated
    “market” price for the new phone that will be required to change to 4G.  That choice makes as much sense.  It is odd that of all electronic devices
    introduced in the last couple of decades, only cellphones seem to defy the rule
    of increased capability at lower price.

    And once consumers graduate to the world of faster services, they will
    find they will meet their cap much more quickly, as PK demonstrated in our
    report, “4G + Data Caps =
    Magic Beans.”  That’s because as Verizon
    and other carriers push the benefits of watching video over wireless, they also
    know that video uses much more data than email or simple Web work.  The fact that Verizon or other carriers would
    warn consumers when they approach the cap doesn’t eliminate the problem that
    caps are so low that just about any usage could cause a consumer to go
    over.  Here’s a local Washington TV report
    that shows the dangers of caps.

    What’s so discouraging about
    Genachowski’s remarks is that they seem divorced from the reality of what’s
    going on with consumers and in the high-speed Internet marketplace he is so
    fond of touting.  At the NCTA annual show in Boston, Genachowski had two
    venues to talk about broadband caps.  One
    was onstage in a conversation with Michael Powell, the former FCC chairman who
    now heads NCTA.  The other was in an
    interview with CNBC.  In each case,
    Genachowski endorsed data caps. 
    According to press reports, he told Powell “usage-based pricing could be
    healthy and beneficial” for broadband. 
    He also set up a straw man that he could blow away by saying, “There was
    a point of view a couple years ago that there was only one permissible pricing
    model for broadband. I didn’t agree.”

    In the CNBC interview, he expanded on
    that thought saying, “usage-based pricing with increase efficiency, can enable
    consumer choice and competition, it can result in consumers who use broadband paying
    less.” Consumers will look at the caps to determine whether they are being
    treated fairly, Genachowski said.

    These views just don’t comport with the
    reality that consumers see, nor with the consumer-protection role the FCC
    should carry out.  In the first place,
    data caps are not “usage-based pricing.” 
    Consumers do not “use” data, as they might “use” electricity or natural
    gas.  There is no shortage of bits; they
    are infinitely replaceable, as opposed to a kilowatt of electricity of a cubic
    foot of natural gas.  Once they are
    burned, they are gone forever.  What
    consumers are paying for is transmission capacity.  There is no way to tell how much it really
    costs, whether the $10 for the additional 50 GB of capacity over the basic data
    cap of 300 GB bears any relation to anything.

    But we digress.  In a true “usage-based pricing” scheme,
    consumers would pay based on what they use. 
    The data caps are nothing of the sort. 
    “Use” 2 GB per month or 300 GB, and consumers pay the same basic monthly
    rate.  There is no opportunity to end up
    “paying less,” as Genachowski said.  Only
    more, which is what industry is counting on, as Verizon Chief Financial Officer Fran Shammo said.

    Secondly, there is no way that such
    pricing can give consumers any more choice or create any more competition.  In fact, the trends are going the opposite
    direction, as the proposed deal between Verizon and the biggest cable companies
    (which the FCC and Justice Department are evaluating) aptly demonstrates.  Verizon is giving up on the landline side of
    the business.  It has stopped building
    its FiOS fiber-based service and has made its copper-based and much slower DSL
    very unattractive to consumers by requiring it be sold bundled with telephone
    service.  Instead, Verizon Wireless (an
    affiliate of Verizon), will market the local cable company’s high-speed broadband.  Which in some cases come with data caps.  This FCC, while praising the merits of competition in the abstract, has done nothing actually to increase competition and add to consumer choice in the broadband market. 

    Most consumers have the choice, if they
    are lucky, between the cable company and the phone company for high-speed (and
    we that term advisedly) Internet access. 
    The phone company offerings are usually inferior to cable in data speed and capability.  So even if a consumer determines a cap is
    being unfairly applied, what can he or she do about it if there is no
    meaningful competition, meaning a choice between services with similar
    capabilities?  Answer:  nothing.

    Similarly, it is up to the FCC to
    determine whether caps are being fairly administered.  Can companies exempt their own bits from a
    cap, but count a competing service, like Netflix?  It doesn’t matter what a consumer thinks.  This is a matter of interpreting the
    law.  And that is the FCC’s job, whether
    the current Chairman appreciates it or not.

    There is no doubt that broadband is going
    to play an increasingly important part in consumers’ lives.  The New Orleans States-Item, a 175-year-old paper,
    which distinguished itself during Hurricane Katrina, is cutting back its printed
    papers to three days per week.  The rest
    of the time the news will be online only.

    When consumers who want essential
    information and services are at the mercy of a tightly controlled marketplace
    dominated by big companies, which were given that dominance by regulators in
    the first place, the government agency charged with consumer protection should
    be extra vigilant.  It should not make a
    point of making big industries feel good about themselves, which is
    unfortunately what happened in Boston.