Will Customers Accept an End to Unlimited Data from Comcast?

The rapid growth of streaming video services led by Netflix has raised the possibility that Internet service providers will -- like most mobile phone carriers have -- move away from offering one-price, all-you-can-use data plans.

While most ISPs have yet to formally announce plans to cap or throttle heavy data users, Comcast  (NASDAQ: CMCSA  )  already has a plan in place. The cable and Internet provider, which is currently seeking federal regulatory approval to merge with Time Warner Cable  (NYSE: TWC  ) in a $45 billion deal, would provide Internet service to 40% of the country should the merger go through. 

If one company controls that much of the market decides to cap, throttle (slow down access during peak times), or otherwise put a price tag on data that goes over a certain level, it makes it easier for the rest of the industry to do the same. That is essentially how the mobile phone companies moved from offering truly unlimited plans to selling tiered data plans.

Of the four major mobile phone companies, none offers a truly unlimited data plan. AT&T  (NYSE: T  ) , which only offers unlimited plans on a grandfathered basis, throttles speeds after 5GBs. Sprint  (NYSE: S  ) stills sells an unlimited plan that throttles data at certain times for its heaviest 5% of users. T-Mobile (NYSE: TMUS  )  throttles after a data cap is reached. Verizon  (NYSE: VZ  ) does not currently show an unlimited data plan on its website. 

Unlimited data was a logical offer for mobile phone companies back when people had flip phones or limited-function smartphones used for basic web browsing. Once watching video and streaming music on a phone became common, making these plans disappear became a priority for the mobile carriers.

Now that streaming video to your television or other connected devices on home Internet networks has flourished, the ISPs will likely attempt to do the same. If Comcast successfully merges with Time Warner Cable then you can assume it will extend data restriction policies to its new customers.

How is Comcast capping data? 
In 2008, Comcast announced an Internet data usage policy that allowed residential customers up to 250 GB of data usage per month. This, the company said in a press release, "was far above any normal (including very heavy) residential use of our high-speed data service, and in fact, that remains the case today." 

That policy was changed in May 2012 when the ISP replaced its static 250 GB usage threshold with what it described as "more flexible data usage management approaches that benefit consumers and support innovation." The company explained the new plan as follows.

The first new approach will offer multi-tier usage allowances that incrementally increase usage allotments for each tier of high-speed data service from the current threshold. Thus, we'd start with a 300 GB usage allotment for our Internet Essentials, Economy, and Performance Tiers, and then we would have increasing data allotments for each successive tier of high speed data service (e.g., Blast and Extreme). The very few customers who use more data at each tier can buy additional gigabytes in increments/blocks (e.g., $10 for 50 GB).

The second new approach will increase our data usage thresholds for all tiers to 300 GB per month and also offer additional gigabytes in increments/blocks (e.g., $10 per 50 GB).

In both approaches, we'll be increasing the initial data usage threshold for our customers from today's 250 GB per month to at least 300 GB per month.

However you phrase it, Comcast did not foresee the rise of services like Netflix and the increased data usage that would bring. The company was willing to give its users 250 GB of data back when few would use it; now that more and more customers are likely to go over, though, Comcast sees a way to increase revenues.

This type of tiered pricing and charging for data overages also gives the ISPs that are also cable companies a hedge against cord cutting. If a customer drops his cable subscription, he will still need Internet access to use streaming video services. Those people are the most likely to top the allotted data. While the companies will lose a cable subscriber, they should make up some revenue on the ISP side.

How much data is being used?
While it's easy to paint the ISPs as villains, one of the key reasons that data caps and throttling are on the table is that people use a lot more data. Forecasts show that this number will grow in the future.

According to Cisco's Visual Networking Index, consumer Internet traffic will grow by 260% through 2018 to an estimated total of 83,298 petabytes or 83 million terabytes per month. The growth in IP traffic will mainly be driven by an increase in online video consumption, which is expected to account for 76% of all consumer Internet traffic in 2018, up from 60% in 2013. Here is a look at the the projected growth:

The numbers are big, and they're getting bigger. It's reasonable to think that the ISPs would want to cap usage or charge more after a certain point. The question is whether they can do it in a way that keeps customers from looking at alternate means of getting Internet access.

Right now, choice in most markets is limited to cable companies and phone companies -- that's sort of like picking between a root canal and a colonoscopy. With Internet giants including Google exploring alternate ways of bringing people Internet access, however, the lack of choices may not be a forever thing. If the ISPs handle the move from unlimited to capped or throttled access as clumsily as the phone companies did, the hunger for an alternative will grow stronger.

What can ISPs do? 
Comcast -- which usually has the grace of a drunken fratboy -- has actually handled the concept of data caps reasonably well. The challenge is phasing in caps that impact very few people while maximizing revenue from the users who consume the most data. Since the vast majority of customers don't reach the cap, few know it exists. That creates problems going forward as streaming services integrated into TVs and other devices become even more common and make it easier for more people to go over the limit.

Before that starts to happen, Comcast and the other ISPs should offers apps and on-screen tools to track data usage that clearly show the cost of going over. If consumers can see their usage then they will be able to watch it grow as they increase their streaming behavior. That will allow them to limit data use or at least not be surprised when increased consumption puts them in a situation where they need to pay more.

People are not unwilling to pay when they see that they are getting more for their money. They tend to react poorly when something that was once seemingly free now costs extra, however. Unfortunately, it's hard to imagine that the ISPs will be deft enough to handle this transition from an unlimited to a capped data world without angering some customers and opening up the door for competitors.

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Read/Post Comments (15) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2014, at 5:57 PM, Skippy9250 wrote:

    Caps have nothing to do with bandwidth thus have nothing to do with limiting the traffic during peak times.

  • Report this Comment On June 16, 2014, at 5:57 PM, Skippy9250 wrote:

    Caps have nothing to do with bandwidth thus have nothing to do with limiting the traffic during peak times.

  • Report this Comment On June 16, 2014, at 6:53 PM, DanielKeelan wrote:

    Despite that the ISP innovators of the 1980s and 1990s clearly saw the advent of video, voice and other bandwidth intensive apps (can you say VOIP, Webinars, Telemedicine apps, etc) in 2001, these broadband providers entered the ISP market with cut rate prices for incredible speeds.

    Now, as has been expected, they are reaping what they sowed.

    Curious to know how they plan on addressing business users.

  • Report this Comment On June 16, 2014, at 7:42 PM, segarolow4 wrote:

    Its not should go through. It WILL GO THROUGH.

    As the FCC and all the Idiots in DC have been bought off.

    I have Time Warner right now and doing great with it. And going at 112 Mbps.

    My friend has Concrap. And is paying 10 bucks a month more then I am.

    And going at 50 Mbps are less. Why would I want Concrap? When they take over Time Warner and put the caps in place. I will tell them to Fuc$ Off and find a new way for the net!

  • Report this Comment On June 16, 2014, at 8:51 PM, DarqNet wrote:

    Push for Google Fiber. No data caps and its 1 Gig down and 1 Gig Up for only $70 a month. Get the elected clowns out of the way and lets get market forces working.

  • Report this Comment On June 16, 2014, at 11:33 PM, hbk72777 wrote:

    They didn't foresee people needing more bandwidth n the future?

    Bull. Everyone knew videos were coming, everyone knew Skype was coming. Now it's here.

    They can play all of the games that they want, Google will fix them.

    F the FCC

  • Report this Comment On June 17, 2014, at 2:01 AM, SkipPlummer947 wrote:

    Comcast just may (and I say may) have been a good idea when it was thought up but long ago it became a complete ship wreck and yes, the FCC may have had a lot to do with that.

    I think that there may be a cable company in my town but I have never checked into that (I've been living here since 1990).

    A cable company, where the Internet is concerned, is something to stay far, far away from.

    I will stick with my telco's DSL for $19.95 every month and with no caps, ever.

    It's plenty fast enough for Hulu Plus, Netflix Pro, any movies or video, VoIP both outgoing and incoming and anything else that I might want to do with it. I am a hot spot for my area and, with the proper codes, insurance adjusters and the like can use me for Internet access for their laptops when they are working in this area. There is a wireless Roku device for the TV as well.

    Comcast or Time/Warner? While I was still working I was online all over this country and Canada and I never really encountered either one of them.

  • Report this Comment On June 17, 2014, at 4:41 AM, Wopalongcassidy wrote:

    I have AT&T, when I first started streaming the speed was great. It has increasingly deteriorated since especially during peak times. I wish they weren't allowed to monopolize service as they do. its now becoming a racket.

  • Report this Comment On June 17, 2014, at 8:21 AM, thinkinstupid wrote:

    It's all about the dollar.The old saying, " The customer is always right!". Who paid to tell that lie!

  • Report this Comment On June 17, 2014, at 10:32 AM, Jerkel68 wrote:

    The broadband carriers are ripping us off...look overseas and you'll see that countries over there have a vastly superior internet compared to us for cheaper prices.

  • Report this Comment On June 17, 2014, at 10:41 AM, mobrocket wrote:

    @Me113456789

    when you call someone a moron its best to at least use proper grammar

    there vs their vs they're

  • Report this Comment On June 17, 2014, at 10:54 AM, Hlots wrote:

    If you really believe in 2008 Comcast didn't foresee the rise of video streaming and other data use you are very naive or a Comcast fanboy.

    Everyone on tech blogs saw this, AT&T's cap, Time Warner's cap as a way for more revenue. At the time of the cap maybe 5% of the people were at or over the cap. But everyone with any common sense could realize that more and more people would be reaching or going over the cap as the amount of data downloaded from the internet goes up each year.

    Now you say it's good for their revenue. Yes, that was the entire goal all along. If you couldn't see that from the beginning you problem shouldn't be writing any articles related to technology. They had no reason to have to put a cap on the internet at the time, the only reason they did it then was that most people weren't hitting the cap so they weren't affected by it and they wouldn't complain about it. Now a few years later more and more people are hitting that cap and they can complain, but it won't get them anywhere since they didn't complain when the caps were first put in place.

  • Report this Comment On June 17, 2014, at 11:42 AM, WirelessDude wrote:

    Every single franchise agreement should be reopened by every municipality. This would be a change in the terms of the agreement, the munis if unable to reach agreement with the provider unlimiting the usage of the constituency should acquire the cable in the Right of Way and open it up to competition. The problem with these providers is that they believe they are protected by the franchise agreement limiting choice and competition.

    Bad enough we pay for cable TV just to watch 20 minutes of advertisements every hour.

  • Report this Comment On June 17, 2014, at 11:56 AM, taptap22 wrote:

    The scheme of business in America is greedy and evil. One commenter here was right in saying you'll find far better service overseas especially Japan, Korea, and Europe.

    Comcast is striving to create a monopoly so they can limit data, increase prices, and serve their god of money.

    This country is first in nothing, last in many. If all the money we have spent on useless evil wars would have been spent at home for infrastructure, we could again be proud of our internet, beautiful highways, airports, bridges and the like, but those things do not feed the almighty military/industrial complex that the Republican president Dwight Eisenhower warned us about.

  • Report this Comment On June 18, 2014, at 5:23 AM, puppybone69 wrote:

    Mobile carrier data caps are only tolerated because you can get around them by using WiFi, so when cable ISP's screw that up too, there will be a massive backlash against data caps by both mobile carriers and cable ISP's, count on that!

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