Data Caps: How ISPs Are Stunting the Growth of Online Video Distributors and What Regulators Can Do about It

Article excerpt

TABLE OF CONTENTS

INTRODUCTION

  I. THE AGREEMENTS FORMING THE INTERNET
  A. Four Ways to Communicate: Peering, Transit, Paid Peering,
  and Intranetwork
  1. Peering: What's a Few Bits Between Friends?
  2. Transit: The Cost of Doing Business
  3. Paid Peering: When it Absolutely, Positively Has to be
     There in Twenty Milliseconds
  4. Intranetwork Traffic: Not Exciting, but Free
  B. Technologies and Trends in Data: More Revenue and Less
  Expense for ISPs
 II. ISPs INSTITUTE DATA CAPS
  A. Cataloguing Data Caps: Size, Penalties, and Staying Power.
  B. Why Cap? Costs and Congestion Money and Power
III. REGULATORY SOLUTIONS: ANTITRUST, NET NEUTRALITY, AND
  PRIVATE AGREEMENTS
  A. Antitrust Regulation
  1. Possession of Monopoly Power: Too Much Success
  2. Willful Maintenance of Monopoly Power
  B. Net Neutrality: Vague Rules with an Uncertain Effect
  1. Do Data Caps Block Access? Only if the FCC Wants
     Them To
  2. Net Neutrality as a Defense: The FCC Made Me Do It!
  C. Individual Agreements: Ending Data Caps One at a Time

 IV. CONCLUSION: MORE THAN JUST TV--DATA CAPS AND THE
  INTERNET'S EXPONENTIAL GROWTH

INTRODUCTION

The advent of near-ubiquitous high speed Internet access has prompted substantial regulatory, legislative, and academic scrutiny over how much leeway Internet service providers ("ISPs") should have to offer preferred treatment for services like Hulu. Some have compared this kind of preferential treatment to creating an Internet "fast lane." (1) More attention should be devoted, however, to the limits ISPs are now placing on their customers' aggregate monthly Internet usage, also known as data caps. If other types of regulations can be characterized as governing speed limits on the information super highway, data caps will ultimately determine customer mileage.

This paper examines current data cap regimes, probable effects on network usage, and what, if any, action regulators can and should take. Part I analyzes the interconnection agreements that, in large part, determine the incremental cost ISPs pay for the data that customers download. This section finds that the most data-intensive network uses are also frequently the least expensive for ISPs and often actually serve as profit centers. Part II looks at the data cap policies imposed by various ISPs and considers the motivation behind them. Given the low incremental cost of data, caps hardly seem to be a price control mechanism. Some evidence suggests that data caps may be a price-gouging tool similar to overages on cellphones. Moreover, data cap policies seem to have the intention of dissuading customers from moving their TV viewing from traditional multichannel video programming distributors ("MVPDs"), which include cable providers, to online video services. Part III considers potential mechanisms for government regulation of data cap policies. Specifically, it proposes that the Department of Justice bring an antitrust action against cable ISPs. Additionally, the recent net neutrality rulemaking by the Federal Communications Commission ("FCC"), if upheld by the courts, also creates new opportunities and challenges for regulating all ISPs, not just cable, and individual settlements may provide quick regulation on a case-by-case basis. Part IV concludes that there is a need for regulatory pressure. If the capacity of consumer Internet access does not grow with the speed of that access, the exponential growth in data usage that has driven the information economy may falter.

I. THE AGREEMENTS FORMING THE INTERNET

ISPs are in the business of sending information to and from customers. To do this, the ISPs--owners of the last mile of cable to a customer's house--contract with backend service providers, owners of high-bandwidth interstate and international connections, to transmit data across the globe. These contracts take a variety of forms, and the answer to even the most fundamental questions--such as "which party pays? …