Fool Blog: Comcast's Cop-Out

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Does Comcast (Nasdaq: CMCSA  ) think we're stupid? You'd think so. Last week, executives there said that they're capping Internet usage. Cross the line, and you'll be disconnected.

What's so dangerous about this policy is that it seems reasonable. Comcast's cap is at 250 gigabytes, or 100 times what the average user consumes. Very few of us download 62,500 songs or 125 standard-definition movies each month.

Nevertheless, Comcast's cap ignores something fundamental: The Internet is growing exponentially. Look at the key players. Motley Fool Rule Breakers recommendations Akamai (Nasdaq: AKAM  ) and Google (Nasdaq: GOOG  ) have grown revenue by 37% and 46%, respectively, over the past 12 months.

For its part, Comcast says that the cap is designed to prevent bandwidth hogs from stealing time from Joe and Jane Webizen. Yeah, and when my cousin Eddie tells me he'll pay me back on Tuesday the $50 I'm loaning him today, he doesn't really mean that I'll never see that money again. Silly me.

Here's what Comcast should have said:

"See, we've got this legacy cable business. That wouldn't be so bad if innovators weren't making it easier to stream video over the Web. Microsoft's (Nasdaq: MSFT  ) Silverlight helped bring you the Olympics. So did Limelight Networks (Nasdaq: LLNW  ) , and it's also behind Netflix's (Nasdaq: NFLX  ) Watch Now service. Intel (Nasdaq: INTC  ) is working on chips for Web TV. These technologies will improve over time and, as they do, they'll demand more bandwidth. We're not big fans. In fact, we'd prefer you ignore these innovations and watch TV and video the traditional way, over our cable network."

Most troublingly, this cap reveals Comcast to be gutless. Otherwise, management would immediately replace it with utility-style pricing, in which bandwidth burners would pay extra. Trouble is, that involves risk. A limitless pay-per-use model could boost demand and force Comcast to upgrade its infrastructure, even as top customers shop for cheaper services.

Still, blaming the bandwidth hogs is a cop-out, Comcast. You're small-f fooling no one.

More bloggy Foolishness:

Fool contributor Tim Beyers had positions in Akamai and Google shares, and Google's 2010 LEAP options at the time of publication. He hunts for the best of tech as a contributor to Motley Fool Rule Breakers, which counts Akamai and Google among its holdings. Here's how to try this market-beating service free for 30 days. Get access to all of Tim's Foolish writings here.

Netflix is a Stock Advisor selection. Intel and Microsoft are Inside Value picks. The Motley Fool's disclosure policy loves you for exactly who you are.

Read/Post Comments (3) | Recommend This Article (2)

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 September 02, 2008, at 2:26 PM, elkabooko wrote:

    I wish, for once, people who write articles about "limits" and "throttling" stop and recognize the limitations of hardware! You assume that bandwidth is unlimited. Unfortunately, you assume wrong.

    Any computer network can handle only so much data. Why should the rest of Comcast customers pay the price for building out a network to support the heavy loads of a few individuals? Granted this is the future, but for right now, who will pay?

    For a moment, imagine you own a semi-truck.

    Do you think for one moment that your appartment manager would not kick you to the curb if you parked it and took up 6 or 7 normal spaces?

    In addition, what if you and ten other semi owners decided to take a drive down the freeway, cloging traffic and preventing Jane or Joe from driving their compact down the same freeway? Is it fair to force Jane and Joe's taxes to be raised so to add additional lanes of traffic for you and your friends?

    In the end, Comcast is wise to limit the amount of data an individual can download. Why not? If a heavy user insists on downloading more than 250 gigs in a month, should they not be required to pay more to add additional capacity to the network?

    A more educated set of questions would be as follows:

    1. What are Comcast's plans to add additional capacity to their networks?

    2. What is the capacity of Comcast's network?

    3. What are Comcast's plans to charge for higher end users who require more bandwidth?

    In the end, it's less about preventing customers from downloading video than handling the data flowing through the pipe to a customers home.

  • Report this Comment On September 02, 2008, at 3:17 PM, TMFMileHigh wrote:

    With all due respect, elkabooko, I assume no such thing. What I assume is that, if Comcast really were serious about protecting Joe and Jane Webizen, it would institute utility pricing. I really is that simple.

  • Report this Comment On October 24, 2008, at 11:46 AM, Burley wrote:

    Sorry, TMFMileHigh, but I have to agree with Elkabooko.

    I wholeheartedly disagree with utility pricing. Didn't AOL have something like that in the past? Why do you suppose they don't today? Because no one likes it.

    I say, put a cap on usage as Comcast has done, BUT don't limit it to 250 G, tie it to "average" usage, and maintain the 100x limit so that as "normal" usage goes up, so does the cap. That, in my opinion, is a much better solution than utility pricing.

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