Why Comcast really cares about data caps and tiered plans

U.S. cable operator Comcast has recently announced changes to the way it plans to bill for Internet access. Instead of capping broadband customers at 250GB of transfer per month, Comcast plans to raise its cap to 300GB per month and then charge for additional data transfer above that limit during the month. One figure being bandied about is $10 for each 50GB (or portion thereof) above that limit. The plans are just a trial, but if the tests work out, the company plans to roll out bandwidth billing changes across its network.

The current and former chairmen of the FCC seem to think this sort of tiered access is a good thing, but it’s important to remember that Comcast is the company that gutted the FCC’s authority to enforce network neutrality.

What’s going on here, and what might it mean for other broadband providers and companies like Netflix that want to reach Comcast customers?

Comcast’s plan

Back in 2008, Comcast introduced a 250GB data cap for its broadband customers. At the time, Comcast claimed that data cap was far in excess of typical customer usage of two to three gigabytes per month, and would impact less than one percent of its users. Customers who consistently exceeded the limit would be at risk of having their data service shut off altogether.

Comcast Tiered Internet Square

Comcast positioned the 250GB data cap as a necessary measure to manage its network. Network management was also the company’s battle cry when it was shutting down peer-to-peer file transfers back in 2007; the company claimed it needed to be able to clamp down on the heaviest users of its network to relieve data congestion and protect service levels to the majority of its customers. Comcast was sanctioned by the FCC for those actions, so it took the FCC to court — and won. As a result, the FCC has struggled for much of the last four years to formulate regulations defining net neutrality — as well as a legal basis for enforcement. The FCC’s current net neutrality formulation is being challenged by Verizon; as a result, there is currently no federal oversight or enforcement of how ISPs manage traffic and their networks.

Now its 2012, and according to network management firm Sandvine, the typical North American household with broadband Internet access now uses 32GB of data a month — a more than ten-fold increase from 2008. (As an example of how fuzzy these numbers can be, Comcast says its typical users consume 8GB to 10GB a month.) Comcast is positioning these changes as making more broadband available to everybody, helping fuel consumers’ increasingly-digital lifestyles. These changes are in turn driven by things like high-def streaming video and Wi-Fi-enabled tablets that latch onto a home broadband connection rather than pricey mobile data plans when folk aren’t out and about.

By raising the initial cap to 300GB — an increase of 20 percent — and then implementing tier-based charges for additional access, Comcast wants to sent a message that data caps are gone. Customers can just use as much bandwidth as you want, and they’ll be billed based on their consumption.

Ah, but there’s an exception

Xfinity On Demand Xbox

Comcast’s new approach to bandwidth limits has an interesting twist: Not all data will be treated equally. Downloading software, engaging in video calls, downloading movies, playing network games, and streaming video? All that will count against customers’ data consumption. However, downloading video from Comcast over its new Xfinity On Demand service for the Xbox 360? Exempt.

The move appears to be a blatant violation of the FCC’s framework for net neutrality — which, remember, is currently tied up in court and cannot be enforced. The FCC would mandate that all lawful Internet traffic must be treated equally, without providers discriminating against particular services or applications for competitive advantage. In the absence of enforceable rules, however, Comcast is forging ahead with treating its own services differently. It may (or may not) be treating network traffic from its own services differently than anything else, but it will be billing differently for them. In theory, this gives Comcast’s own video offerings a significant competitive advantage overs services like Netflix, Amazon Prime, Hulu Plus, and (in the case of the Xbox) things like ESPN and Microsoft’s own video rental service on the Zune marketplace.

Comcast says the bandwidth-exempt Xfinity service for Xbox owners is implemented via a “private IP network” rather than the public Internet — and thus wouldn’t be subject to FCC regulation even if the agency could take them to court. The use of a private network — the same network Comcast uses to bring broadband to 20 percent of U.S. households — seems to confirm suspicions that major ISPs would use weakened net neutrality policies to create private networks exempt from FCC regulation. Today it might just be Xfinity Video on Demand for Xbox to customers… but tomorrow it could be PlayStation, Wii, Apple TV, Netflix, or Amazon that makes a deal with Comcast, giving those services and devices a bandwidth edge on their competition amongst Comcast customers. There is also evidence Comcast is categorizing traffic from its own services differently than the public Internet, and perhaps granting higher priority to its own services than the public Internet.

Many critics have also argued that Comcast’s pleas that it needs data limits to manage its network aren’t accurate. After the FCC censured it for blocking legitimate networking traffic, Comcast indicated it didn’t need bandwidth caps to manage its networks, but could instead temporarily impede network performance from its heaviest users to relieve temporary congestion. That was back in 2008. These days, critics like the Free Press argue data limits have no impact on network congestion — even in cases where network congestion actually exists.

Powell and Genachowski

FCC Chairman Julius Genachowski

So what’s the FCC’s take on all this? Speaking at the National Cable & Telecommunications Association (NCTA), FCC Chairman Julius Genachowski indicated general support for usage-based pricing tiers, indicating it could be a useful business model for ISPs and network operators to generate revenue to build out their operations, while potentially providing affordable access for a broader group of consumers.

“Usage-based pricing could be a healthy and beneficial part of the ecosystem,” Genachowski said.

The NCTA’s current chairman is Michael Powell — he’s the son of former Secretary of State Colin Powell and himself served as Chairman of the FCC from 2001 to 2005. In his remarks to the NCTA Powell argued against regulating ISPs and broadband providers, arguing that regulations stifle innovation, tie the companies’ hands, and deter investment.

“Letting politics allocate resources — rather than market economics and entrepreneurs — would kill investment and leave the Internet in the state we find today’s post office, electric grid, or crumbling transportation system,” Powell said. “A light regulatory model that favors free enterprise has led to a vibrant digital economy that is empowering educators, business owners, and consumers no matter where they live.”

Genachowski’s general support for tiered usage plans like Comcast’s came while he was being interviewed by Powell. The FCC has not formally weighed in on Comcast’s plan to exempt its own video services from bandwidth caps.

Netflix and Sony


If the average broadband household only consumes 32GB per month — or 8GB to 10GB per month, according to Comcast — then what’s the big deal? It would seem a 300 GB allotment would be more than enough to satisfy most users. If high-definition video is (in round figures) about 2GB per hour, then a 300 GB data tier should let Comcast customers watch over six days of continuous high definition video and stay within their cap. And if someone wanted to stream high-def video 24 hours a day, seven days a week, for a full month, Comcast’s plan would have them paying about $230 in extra charges. For most people, that’s not insignificant, but it’s not life-shattering.

So far, objections don’t seem to be with the 300GB number, but with the precedent Comcast could set.

Netflix CEO Reed Hastings has admitted that Comcast’s former 250GB monthly usage cap didn’t present an immediate logistical problem for most Netflix customers, but has vocally objected to Comcast exempting its own services from its usage tiers.

“[If] I watch last night’s SNL episode on my Xbox through the Hulu app, it eats up about one gigabyte of my cap, but if I watch that same episode through the Xfinity Xbox app, it doesn’t use up my cap at all,” Hastings wrote on Facebook last month. “The same device, the same IP address, the same Wi-Fi, the same Internet connection, but totally different cap treatment. In what way is this neutral?”

Similarly, in early May Sony executive Michael Aragon indicated concerns over data caps were causing Sony to reconsider launching its own Internet video services designed to compete with cable and satellite. Aragon indicated Sony was looking for “clarity” on whether Comcast would exempt its own services from data limits. Now, Sony seems to have that clarity — and it may mean a potential competitor never gets off the ground. Similarly, Intel’s reported upcoming Internet-based live television service may face significant hurdles if it has to compete against provider-based services that are exempt from bandwidth limits.

Bottom line

Fiber Optic Beauty Shot

Right now, it doesn’t matter very much whether Comcast’s usage tiers for residential customers are 250GB or 300GB — the limits are still far higher than most households need — for now — and the extra 20 percent isn’t going to be a tremendous benefit for folks who are challenged by the 250GB limit. Being able to pay for a bit more bandwidth — instead of having their service cut off — will undoubtedly be welcome.

The catch, however, is when services like the Xfinity service for Xbox 360 are except from bandwidth requirements. A small handful of companies are the gatekeepers for home broadband Internet access for most Americans: think Comcast, Time Warner, Verizon, AT&T, Charter, and Cox. Current industry estimates indicate that about half of all U.S.household broadband connections are now subject to usage caps.

If Comcast succeeds in establishing a business where certain types of traffic will be exempt from broadband limitations, other major ISPs will follow suit. Maybe one or two strike deals with Netflix, one or two strike deals with Apple, a couple make agreements with Sony or Amazon or Google. Regardless of whether bandwidth caps are low enough to have a real-world impact on most broadband users, it still creates a new kind of Internet where data from an ISP’s preferred partners incurs less cost to consumers than data from its competitors. Given that many Americans have few choices (or, in many cases no choice) of broadband providers, it doesn’t take much price discrimination to put someone over a barrel.

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