To Cap, or Not

[Commentary] As people do more with their broadband connections — streaming movies, downloading music, moving files to and from the cloud — it might seem natural for Internet service providers to impose data caps on users to manage their networks and deal with congestion.

Wireline data caps are billed as a way to manage traffic, but they could also hamstring the user’s experience, blunt competition online and stymie innovation on the Internet. This problem is of particular concern because there is hardly any competition in high-speed broadband services (speeds above 10 megabits per second). Some users have a choice between a cable company and a phone company. In many areas they have no choice. Caps should not just be a way for Internet providers to extract monopoly rents. Data caps are a blunt way of managing broadband. Moving an extra gigabyte of data at off-peak times costs virtually nothing. Peak demand is the problem. Yet caps make no allowance for this. Moreover, there is no crunch in wireline broadband capacity, as there is in wireless. Internet providers must recoup substantial investments in their networks, but adding capacity is cheaper than putting up a network, and becoming cheaper all the time. Caps can be used anticompetitively — to discourage the use of services that rival an Internet service provider’s in-house offerings.

The Federal Communications Commission should seek to understand how effective they are at relieving congestion and what effect they have on services that rival Internet providers’ in-house offerings, like video. And it should keep an eye on whether caps respond to network efficiency gains and capacity increases. Caps must not impede development of broadband.