Genachowski Ignores Harm of His Data Cap Sentiments

[Source: Public Knowledge, by Art Brodsky, May 24, 2012]

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 goodwill 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, is 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 cell phones 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 increased 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 comes 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.