Comcast (NASDAQ:CMCSA) has begun testing data caps in certain markets and plans to make what it prefers to call "usage-based" billing standard policy across the country within the next five years.
Previously, in nearly all cases, Internet data was an unlimited flat-rate, all-you-can-eat buffet. Under its new plan, which Comcast has already rolled out in a number of test cities, the company will sell users a flat amount of data and then charge them overages. This will take a system where customers had cost certainty and replace it with the model that has served the cell-phone industry so well -- one where subscribers pay more if they go over a set limit.
"People who use more should pay more, and people who use less should pay less," Executive VP David Cohen told investors in May, BGR reported.
That sounds correct on the surface, and charging more for data over a certain amount may be a necessity in a world where so many of us are streaming video content over our broadband connections as part of our daily lives. But the cable companies, which are also Internet service providers (along with the phone company ISPs), have a poor track record when it comes to billing. Data caps may be logical, and Comcast, which is waiting federal approval of its $45 billion merger with Time Warner Cable (UNKNOWN:TWC.DL), may be going about things the right way, but consumers are right to be wary about what this means for their bill.
What is Comcast doing?
Comcast has been testing two different plan pricing strategies in an expanding number of markets (there are variations and differences depending upon the market). One potential plan offers set amounts of data starting at 300 GB for a fixed price, with additional data being sold in 50 GB blocks for $10. The second plan targets low-volume users and offers them 5 GB of data at a set price, but there is a twist. Customers enrolled in this plan, called the "Flexible Data Option," receive a $5 credit if they use less than 5 GB in a month but pay $1 per extra GB they use.
With the larger plans, Comcast appears to be making every reasonable effort to allow customers to track where they stand when it comes to data usage. People on the 300 MB or bigger plans will receive an email to their primary Comcast user email address when they reach 90% and 100% of their monthly allotment. In some markets you can also arrange to be notified when you reach 50%, 60%, 70%, 80%, 110%, and 125% of your usage. It's possible in some markets to set up notifications via text message, and the company will also make an automated phone call to its customers when they pass 100% for the second month in a row.
The company also provides an online usage meter where customers on all tiers can track how much data they have consumed.
For subscribers to these more expensive plans, Comcast appears to be making a reasonable effort to help people avoid overages. The same can't be said for the Flexible Data customers who are specifically not currently included in the notification system. That means that the customers choosing the cheapest plan are the ones most likely to be blasted with costly, unexpected overages.
Comcast should opt for total transparency
Under these plans, Comcast can profit by charging reasonable overage fees to its higher-data customers on 300 GB and above plans and by hitting its lower-end users with prices per GB for overages that are five times higher. Comcast may need to do this as more customers use more data and strain increases on its infrastructure. But if capping data and adding overage charges is really about maintaining network integrity, the company should warn all customers when they are getting close to their allotment and require authorization to add more data for the month.
There's a way to do this right, if it truly needs to be done at all, and it involves putting choice in the hand of the customer and not using a data cap to inflate people's bills without their consent. Comcast can still charge more and better control its resources -- which is good for the company -- while ensuring that its subscribers retain control over their expenses and avoid monthly billing surprises.
Daniel Kline owns shares of Apple. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.