AT&T Formalizes Bandwidth Cap Policy for Fixed-Line Broadband

By Gary Kim, Contributing Editor

AT&T (News - Alert) says it will impose a 150 Gigabytes-per-month data cap for its digital subscriber line of customers, effective May 2, with a cap of 250 Gigabytes for U-verse customers.

DSL users who exceed 150 GB will be charged $10 for ever additional 50 Gigabytes a month they consume, and presumably the overage charge will be similar for U-verse customers. Comcast (News - Alert) already has announced that it will institute caps of its own in October 2011. That basically is a formal codification of Comcast's informal rules already in existence for consumer customers.

AT&T argues that less than two percent of its customers will be affected by the new policy, and that the average DSL account uses about 18 Gigabytes per month. It is hard to directly translate that to a "consumption per user" metric since many accounts are shared by family members, for example, and usage within each family will vary dramatically .

Some estimates of fixed-line usage on a per-person basis have suggested something on the order of 5 Gigabytes a month. Clearwire (News - Alert) said in 2010 that its average consumption was about 7 Gigabytes a month, which most observers would agree is on the high side of usage by mobile users. "Averages" are misleading, though, as virtually all studies show that a very-small percentage of users drives a disproportionate amount of data consumption.

A bandwidth usage study by Time Warner (News - Alert) Cable found that the top 25 percent of its customers consumed 100 times more data that the bottom 25 percent of users. A 2009 Cisco study of global broadband consumption found that, worldwide, 10 percent of consumers were responsible for 60 percent of total bandwidth consumption, and that the top 1 percent of consumers was responsible for a staggering 20 percent of total consumption. See

The caps might be seen as a policy affecting an incremental portion of the user base, specifically the small number of accounts that consume disproportionate amounts of capacity. The real issue is what happens in the future, when "typical" usage grows, particularly because of expected changes in video consumption.

Some people, especially those who actively write about such things, will be unhappy. That is to be expected. Consumers like lower prices, higher quality and added features and value. Providers generally want higher prices, and, it might well be argued, add quality, value and features in large part because competitors in the market push them to do so (there are some notable differences, especially when an upstart actually does want lower prices to prevail, because its own cost structure is so dramatically lower that it can squeeze legacy providers while capturing much of the market which remains).

Most consumers will learn to live with the "idea" of "buckets of usage" for broadband services, as they currently buy their mobile services. Some people worry about "metered" pricing or billing, but that is quite a different concept from the "buckets" people now buy. An overage fee of $10 for 50 Gigabytes arguably will not be experienced as a "metered" use. Lots of products in life -- perhaps most -- are sold on a "metered" basis. Milk, eggs, bread, gasoline, water, wastewater services, natural gas, electricity, cars and iPads and iPhones are sold on a "metered" basis, where quantity has a direct bearing on cost.

Nobody likes to pay more for an existing quantity or quality of any good. But much more consumption is a different thing. I'm not sure people really disagree that if they buy more quantity of something with a unit price, they pay more, simply because they've bought more. Nobody behaves as though buying one iPad at retail should properly give the right to take five more at no incremental cost. Bandwidth is not fundamentally different, on that score.

To be sure, truly metered pricing, where a user might be charged by the minute, has proven to be highly unpopular in the U.S. market, as it causes people to worry about how much they are using. There is an argument that "wasting" bandwidth, by removing any constraints on consumption, encourages innovation. But it is a reasonable proxy, when most people consume less than 10 Gigabytes a month, and most probably consume 5 Gigabytes or less a month, to institute caps that are two orders of magnitude higher.

As with a bucket of voice minutes that is set two orders of magnitude higher than any given user's consumption, over a 30-day period, the behavioral impact is the same, whether the user has a cap set so high there is no danger of overages, or when usage is formally "unlimited."

That said, buckets do represent a pricing scheme that roughly corresponds to the notion that a consumer who wants more will pay more. Beyond that, markets are helpful in providing signals to consumers and providers about how they can modify and adapt what they do to maximize their own value, especially when consumer demand changes significantly, which is certain to be the case as more end user consumption shifts to video. And it would be reasonable to assume that consumers and producers will behave rationally as important changes occur as video becomes the dominant type of traffic on all networks, not just the global backbone networks, where some estimates peg video at 90 percent of all traffic, today.

Video is disruptive in a way that no other Internet application is. Internet video is now over one-third of all consumer Internet traffic, and will approach 40 percent of consumer Internet traffic by the end of 2010, not including the amount of video exchanged through P2P file sharing.

The sum of all forms of video (TV, video on demand, Internet, and P2P) will continue to exceed 91 percent of global consumer traffic by 2014. Internet video alone will account for 57 percent of all consumer Internet traffic in 2014, according to the Cisco Visual Networking Index .

Advanced Internet video (3D and HD) will increase 23-fold between 2009 and 2014. By 2014, 3D and HD Internet video will comprise 46 percent of consumer Internet video traffic. Video communications traffic growth is accelerating. Though still a small fraction of overall Internet traffic, video over instant messaging and video calling are experiencing high growth. Video communications traffic will increase sevenfold from 2009 to 2014.

By 2014, Internet TV will be over 8 percent of consumer Internet traffic, and ambient video will be an additional 5 percent of consumer Internet traffic. Live TV has gained substantial ground in the past few years. Globally, P2P TV is now over 280 petabytes per month. Video-on-demand traffic will double every two and a half years through 2014.

Caps, as such, will not deter innovation so long as the caps increase over time, much as storage for Gmail increases daily.

Edited by Tammy Wolf