FCC Urged to Investigate Internet Providers' Netflix Tax--er, Broadband Caps

More than half of U.S. broadband subscribers' connections are limited by a data cap, and two digital- policy public interest groups in Washington DC are asking the Federal Communications Commission to investigate the matter.

A May 6 letter to the FCC from Public Knowledge and New America Foundation's Open Technology Initiative urges Sharon Gillett, chief of the FCC's Wireline Competition Bureau, to "exercise its statutory authority to fully investigate the nature, purpose, and impact of those caps upon consumers."

[Read: When Unlimited Is Limited ]

The strongly-worded letter accuses AT&T of breaking past industry practice by attempting to "convert its data cap into a revenue source."

Just this week, AT&T slapped data caps on its home broadband customers. The ISP's DSL users now have a monthly cap of 150 gigabytes a month, while its U-Verse subscribers get 250GB. A user who exceeds the new usage caps three times will pay an additional $10 for every 50GB of data. By comparison, Comcast limits monthly data usage to 250GB.

Focus on AT&T

Broadband caps may undermine the FCC's own Net neutrality goals, the letter suggests, and could ultimately lead to "anticompetitive and monopolistic" practices. The two groups are particularly critical of AT&T's new data limits.

"Unlike competitors whose caps appear to be at least nominally linked to congestions during peak-use periods, AT&T seeks to convert caps into a profit center by charging additional fees to customers who exceed the cap," the letter states. And since AT&T will profit from users who exceed its cap, it has a "perverse incentive" to avoid raising the cap, even as its network capacity increases.

The groups also point out that AT&T's new caps seem suspiciously low: "It remains unclear why AT&T's recently announced caps are, at best, equal to those imposed by Comcast over two years ago. The caps for residential DSL customers are a full 100GB lower than those Comcast saw fit to offer in mid-2008."

Is It A Netflix Tax?

Let's call the broadband caps what they are: A Netflix tax. More accurately, they're a streaming tax designed to penalize users of third-party video services. Consider the evidence:

· A recent study by The NPD Group shows that Netflix's share of streamed or downloaded digital movies was a whopping 61 percent between January and February 2011. Comcast was a distant second with 8 percent of the market, while Apple, DirecTV, and Time Warner, all tied for third at 4 percent.

· An October 2010 report by Canadian broadband equipment supplier Sandvine showed that Netflix streaming accounts for more than 20 percent of downstream traffic during peak hours, and is most active between 8 to 10 p.m.

· Netflix is growing like gangbusters, and its nearly 24 million subscribers are less likely to rent movies and TV shows from the cable and satellite providers' on-demand services.

Well, if you're AT&T and Comcast, what would you do? The ISPs are probably miffed that Netflix, as they see it, is getting a free ride on their networks.

The solution: Data caps with overage fees. Since a high-definition Netflix video stream uses about 2GB of data per hour, it's not hard for AT&T DSL subscribers who watch a lot of online movies and TV shows to hit the 150GB monthly cap.

Data caps, particularly AT&T's, do look suspiciously like a video-streaming tax. And since most home broadband customers have few ISP providers to choose from, it's time for the FCC to investigate the situation more closely.

Contact Jeff Bertolucci via Twitter (@jbertolucci ) or at jbertolucci.blogspot.com .

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