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OTI Report Suggests Data Caps Result of Decreasing Competition

Mon, 12/17/2012 - 11:51am
Andrew Berg

A new report from the Open Technology Institute (OTI) suggests that carrier implemented data caps are unnecessary and a result of decreasing competition in the U.S. wireline and wireless markets. 

The report claims that the technical or engineering rationale for relying on monthly data caps to address network congestion is questionable, when congestion is often limited to certain peak hours and locations.

"Tiered pricing and data caps have also become a cash cow for the two largest mobile providers, Verizon and AT&T, who already were making impressive margins on their mobile data service before abandoning unlimited plans," the report claims. 

The group argues that the increasing prevalence of data caps both on the nation’s wireline and mobile networks underscore a critical need for policymakers to implement reforms to promote competition in the broadband marketplace, noting that "making bandwidth an unnecessarily scarce commodity is bad for consumers and innovation." 

Wireless providers have long claimed that unlimited plans needed to go to stave off network congestion, which the report recognizes.  

"Claims of congestion in the wireless realm are more legitimate than they are on the wireline side, as growth in data traffic in the past few years has put pressure on the capacity of existing mobile networks," the report states. 

Still, the report goes on to state that past warnings of overwhelming data demands have been exaggerated in an effort to monetize congestion. Tiered pricing plans rolled-out by Verizon Wireless and AT&T the report claims are less about managing network use broadly or addressing congestion, and instead are designed to further increase profit margins on existing consumer data usage as overall subscriber growth in the mobile market slows down.

The report argues that the results of the shift from unlimited to tiered plans has consistently boosted average revenue per user (ARPU) from monthly subscription wireless data plans since 2009, which have climbed at a higher rate than the ARPU for other metrics such as retail service and other postpaid fees. 

The OTI says that trend is likely to increase as AT&T and Verizon push their new shared data plans, which offer additional opportunities to boost data ARPU.

AT&T and Verizon could not be reach for comment on the report.  

This isn't the first time that the wireless industry's claim of short spectrum and congestion has been questioned. Last year a report from Citigroup claimed the U.S. wireless industry isn't facing a spectrum shortage and needs to do a better job managing the bandwidth it already has.

The report claimed that wireless operators and other spectrum holders like cable operators are using only a portion of their spectrum to provide wireless services.

CTIA quickly refuted that report, saying that there is a need to bring additional spectrum to market to fuel what is one of the country's key industries and touted member companies lining up to spend billions of dollars at auction for the right to use available spectrum. 

While the OTI report might point toward a need for more competition, and subscriber growth may be slowing, it's difficult to argue that data usage is flattening. Users on unlimited plans may be decreasing, as carriers nudge them onto tiered plans, but data usage itself it on the rise.

According to Cisco's networking index (2011-2016), the percentage of tiered plans compared to all data plans increased from 4 percent to 29 percent, while unlimited plans dropped from 81 percent to 63 percent. However, Cisco reported that this has not constrained usage patterns. In a year's span, average usage per device on a tiered plan grew from 144.3 MB per month to 388 MB per month, a rate of 169 percent, while usage per device of unlimited plans grew at a slower rate of 83 percent from a higher base of 391 MB per month to 715 MB per month.

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