Bolen: Putting a cap on innovation

Recently, AT&T announced that it would be implementing a monthly cap on its landline DSL and U-Verse high-speed Internet services. Much like phone data plans, it will charge overage fees when users exceed a set data limit for the month, while their services, such as the data-intensive Netflix clone, U-Verse TV, will not count toward this limit. Although the move has been met with anger by some users, AT&T defends the decision, saying that the new caps will only affect the 2 percent of subscribers who use “a disproportionate amount of bandwidth.” Here at Yale, where few students have to pay for Internet and even fewer fall into that 2 percent, it’s easy to just say, “Why should I care?” Unfortunately, this is one issue we should all be worried about.

The argument against AT&T’s new bandwidth caps centers on network neutrality, the idea that your Internet Service Provider should let you access all content in a fair and unhindered way. Essentially, it means your ISP should be your vehicle for surfing the Internet, not your tour guide. By making some services, like Netflix, more expensive, AT&T is directing traffic away from these sites and toward their own preferred Web services. How high the data cap is, or how hard it would be to go over, is immaterial. Simply knowing that you have a cap and that the AT&T services won’t count toward it will be enough to steer many people away from services like Netflix and toward AT&T’s own streaming media service.

But the damage caused by bandwidth caps does not stop there. The real problem surfaces when new sites come along which require even more bandwidth than the current data hogs like Netflix and Hulu. When the bandwidth use of an average household increases, suddenly that huge cap begins to seem positively tiny. Granted, if the service becomes popular, AT&T may raise its caps or come out with its own cap-free version of it, but it’s more likely that the new service would never catch on at all.

To explain why this is, consider a hypothetical situation in which these caps were in place earlier this decade, back before YouTube existed. Of course, Internet use back then was much less data-intensive, as most sites were text- and image-based, so the hard cap would have been much lower as well. Now YouTube comes around, and suddenly bandwidth usage skyrockets every time someone watches a new video. With their Internet capped, many people begin to fear that accessing the site is going to put them over their monthly limit, and they decide it’s not worth watching some silly video of a cat playing a keyboard. Sure, a small group of people still use the site, but keyboard cat may never even be posted. People don’t see a reason to post new content there, and in the end no one sees the point of going there at all. Simply put, YouTube just never catches on. The telecom companies, of course, wouldn’t notice one more business going down the drain, and even if they did they’d just cite it as another example of the fickle desires of American consumers.

The end result, of course, is that YouTube never becomes the powerhouse of Internet culture it is today, and we miss out on one of the defining cultural features of our generation. Then again, maybe YouTube was a good enough idea that it still would have become popular, and AT&T would have increased its bandwidth limits accordingly. But what happens when the next high-bandwidth software comes along? Would Netflix even have offered streaming video? Would it have become as popular if people worried about going over their data limit? What about video chatting, or cloud computing? What seemingly far-fetched ideas would have just gone unnoticed because the right people never saw their potential?

In the end, the reason people are so worked up over this — why they see bandwidth caps as such a bad thing — is because they really are. Telecom companies are doing this knowing full well that it will stifle electronic innovation; in fact to them it’s a bonus, because at the end of the day, less competition means more money for AT&T. I may not be about to go protest outside their building, but this does go at the top of a long list of reasons that I won’t be getting AT&T service any time soon.

Chris Bolen is a third-year graduate student in the Department of Computational Biology and Bioinformatics.

Comments

  • The Anti-Yale

    I didn’t uderstand what YouTube, Hulu and Netflix were doing to bandwidth until I read your important article. Thank you.

    What chance does the average Joe or Joan have of fighting A.T. & T?

  • jnewsham

    Thank you for this article! I’ve been hoping someone would speak up on this issue. I’ve read a mere three hours of streaming HD video can actually eat up the entire 150 GB monthly limit for DSL users. Currently figuring out how to dump AT&T. It’s so hard though (and they know it!)–there’s no one else with whom we can bundle phone and internet service where I live.

  • dschwartz1980

    Great article…Limiting bandwidth limits innovation indeed! What we can do…

    Having worked for Bellcore (now Telcordia Technologies, the former R&D “crown jewel” of the Baby Bells when AT&T split up in 1984), I can attest that the monopolistic era mentality still persists for some influential executives at AT&T.

    The good news is that most consumers in the USA have a choice. We can vote with our individual wallets. In addition to voting with our wallets, we are also empowered with new social media tools. Learning from the Internet Revolution in the Middle East, Americans (led by a few Yalies?) could use social networking to “electronically boycott” BIG companies… that are working against our economic interests and national values.

    I am ready to drop my AT&T wireless services to send a loud and coordinated message that demands: “I want my bandwidth without limitations; I want my family, my company and my country to expand – not limit – our intellectual and economic development. AT&T must innovate, not restrict the engine of innovation that defines our age.”

    As a society, are we not better off creating a “bandwidth bonanza” to stimulate innovation? Faced with monopolistic tendencies and a dangerous case of “marketing myopia”, AT&T needs to start thinking about creating superior customer value via their conduits and chords… If they cannot innovate (like they used to do), then instead of restricting free markets by buying out competitors (e.g. T-Mobile) or putting caps on bandwidth usage, AT&T needs to start thinking about value-creating strategic acquisitions.

    Perhaps buying a content player, say Netflix before Apple or Verizon do, as some investment experts recently suggested.

    Peace.

  • cdecoro

    I share the author’s concern about telecom companies abusing their market power in an increasingly consolidated industry. However, the author’s suggestion is wrong-headed. Rather than a problem, charging by the amount of data transferred is the *solution* to many of his concerns, including net neutrality.

    First, a few terms need to be squared away. Bandwidth is not the *amount* of data transferred, but rather the *rate* at which data is transferred–and confusing the two, as the author does, is a major source of the problem. AT&T sells you, for example, a plan at which the rate you may download is 10Mbit/sec, but (previously) the quantity you may download was unlimited. If a user was to use their full capacity continuously over the course of a month, this multiplies out to be 2,635 Gigabits (or 329 Gigabytes). Which, obviously, is a tremendous amount. AT&T is not proposing to cap your bandwidth (that is, your rate) but rather the amount of total data transferred.

    The reason that they intend to do this is actually a problem of their own making: namely, they have sold their customers something that they don’t have. Not only would this amount of data likely cost them far more than the $39.99 that they charge you (though their cost arrangements are quite complex, and depend on many factors), but they don’t even have the network capacity to support such a high rate of data transfer. In the past, they relied upon the fact that most users will only be using their connections several hours a day, and then only use a portion of it. However, increasingly, they find that some portion of their users are downloading at significantly high rates, 24 hours a day (this is their particular issue with BitTorrent and other peer-to-peer systems, as opposed to NetFlix where presumably one only downloads while watching, and even then only uses a relatively small portion of the pipe).

    Now, I can’t blame those users for using the full rate of their plan — after all, they paid for a 10 Mbps plan, and they have a reasonable expectation of getting just that. But the problem is that the pricing model is flawed. When people are not required to bear the economic burden of their activities, they will overuse, and resources will be allocated inefficiently. Consider, for example, if you didn’t pay for electricity. Would you have an incentive to use energy-efficient light bulbs and appliances? Perhaps if you’re more environmentally-minded than I, but most would not. (BTW, carbon trading to address global warming acts on a similar principle, under the assumption that people do not pay the full cost of the carbon that they burned, so they act inefficiently by overusing).

    (continued)

  • cdecoro

    (continued)

    This is the same with internet usage. If people pay for what they use, they will make decisions based on the economics of those decisions, and allocate their resources in the manner most appropriate to them. If someone doesn’t want to pay for a 1080p HDTV movie from NetFlix, but is happy with a 480i SDTV movie (perhaps because they only have a standard definition TV), they they only need to pay for what they actually use. And the fact is, the actual amount of data that most people use is *very* small, compared to what they believe that they need. NetFlix states that their average streaming rate is only 3Mbps. YouTube, being dramatically lower quality, is commensurately less. I have only a 1.5 Mbps plan, and I stream Hulu TV shows everyday with no problem.

    In fact, in this model, companies would have the incentive to give everyone as fast a data rate as possible. They would *want* you to be able to download more data, because that is what they charge you for, just as any store would want people to buy as many things as possible (have you ever been to a store — other than a restaurant all-you-can-eat special — that said, “no, you’re giving us too much business, we want you to come back less often” ?). They also would encourage you to use high-bandwidth applications like video streaming and BitTorrent, because that would also make them money (notwithstanding the fact that cable companies might not want that, so as to preserve their TV monopoly, but that’s a separate issue).

    The alternative, which is what we have now, is bad for everybody: namely, in order to pay for the costs of providing the service, the companies must charge everyone according to the average rate of data usage across *all* customers. Further, because a raw average would be much more than most customers are willing to pay because of some extreme outliers, they must limit the maximum amount of data usage.

    As a result, everyone is unhappy. People with small data usage that vastly underuse their plan pay for a lot more than they’re getting (consider telling a grandmother that only uses the Internet to email her grandkids that she’s also paying for streaming movies — and subsidizing the streaming movies of others). People that want to download a lot are prohibited from doing so without being penalized as “abusers” — or prohibited entirely.

    I know we like to have unlimited amounts of everything at one low, low price. But unfortunately, this is unrealistic. The better solution for everyone — high-data users, low-data users, and indeed the telcos themselves — is to charge by the amount of data transferred.

    -Christopher de Coro

  • cbolen

    I must say I’m impressed by your comment Mr. de Coro, so I’ll start by saying that I agree with you. What you’ve described is definitely one of the benefits of data caps, and it’s something that I did not go into at all in my column. In fact, with your flowery and lengthy description of it, it almost goes unnoticed that what you’ve described does not actually address any of the concerns that I’ve brought up. In truth, the issue of Net Neutrality centers on the fact that AT&T has applied this cap unevenly among their services, meaning that internet entrepreneurs are facing unfair competition from the very people who actually grant access to their site. But let’s ignore that for a second and just assume that they will eventually realize the error of their ways and fix that one issue.

    What we’re left with may be evenly distributed and fair, but these data caps will still stifle innovation. On the one hand, adding a data cap will relieve the load on certain parts of AT&T’s network and allow them to deliver the speeds they promise evenly to all the customers in their network. That two percent who slow down the network for their neighbors start to use less, and AT&T manages to marginally improve their service without actually having to improve their infrastructure. As a result, Grandma doesn’t have to pay for the torrents little Johnny is downloading 24/7.

    On the other hand, as you have already pointed out, people start to make decisions about how they allocate their data for the month. Those who don’t have an HDTV don’t stream the HD content, while those who do have to decide whether SD is good enough, or if they should sacrifice some other aspect of their internet browsing experience. While you say that this is a good thing (and indeed, it does relieve AT&T of some of the burden of excessive internet use), it is exactly the problem I put forth in my article. These caps, out of necessity, will be slow to respond to changes in the average data usage of a household, and as a result, people will end up having to make choices about whether to bother with the new data-intensive service of unknown quality or just to stick to their old, low-bandwidth standbys. As I’ve already pointed out, this is not a choice that internet users should have to make.

    Once again, I’d like to thank you for pointing out the benefit of data caps. It was something that I simply did not have space to discuss in my own article, but it’s an important aspect of this debate nonetheless. You believe that the benefits outweigh the costs, which you are more than welcome to believe. I honestly can’t say what the majority of people will think, but at least in my mind, that one moderate benefit is just not enough.

    -Chris Bolen

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