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Data caps described as ‘cash cows’ that ISPs use to bilk customers

December 18th, 2012 at 11:59 PM
ISP Data Caps

Bandwidth caps are one of the less popular innovations that ISPs have unveiled over the past few years, and a new paper from the liberal New America Foundation think tank contends that such policies are brazen attempts to pad service providers’ margins by bilking their customers. The paper notes that “data caps, especially on wireline networks, are hardly a necessity,” especially since “the costs to provide broadband service are also declining, including the cost of Internet connectivity or IP transit as well as equipment and other operational costs.”

The paper uses publicly available data to show that ISPs have been implementing these bandwidth caps despite the fact that their wireline capital expenditures have been shrinking as a percentage of their overall revenues. The most glaring example cited by the paper is Verizon (VZ), whose wireline CAPEX dropped from more than 21% of revenues in 2009 to less than 16% of revenues in 2011.

The paper concludes that “policymakers need to promote policies that enable new competitors to enter the market and encourage competition from both the private and public sectors” such as issuing wireless spectrum licenses that “contain wholesale reselling provisions and ‘use-it-or-share-it’ conditions to ensure that newly purchased spectrum does not simply sit idle.”

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