Of Canada, Caps, and Clouds

Last week Canadians got the unwelcome news that their Internet Service Providers could cap their broadband access to downloading as little as 25 GB per month, or the equivalent of about 12 HD movies or 25 hours of Netflix (NFLX) streaming. Outrage ensued, and on Wednesday, Industry Minister Tony Clement said the cap wouldn't stand, noting that if Canada's Radio-television and Telecommunications Commission (CRTC) didn't overturn their decision on usage-based billing of broadband sold to resellers, the government would. This would be akin to the FCC saying ISPs could use data caps and suddenly having a member of President Obama's Cabinet tweet that Congress would write a law preventing it.

It Could Happen Here

For example, Comcast and Charter (CMCSA) (CHTR) currently have data caps that are 250 GB per month up to 500 GB, respectively. Some Canadian providers also have relatively high caps like this, but the more insidious threat is tiered billing. In the U.S., AT&T (T) and Time Warner Cable (TWC) have both attempted to implement much lower caps via tiered broadband access. In 2009, Time Warner Cable ran a trial using tiered broadband pricing that started out at $15 for 1 GB per month and went all the way up to $75 for 150 GB per month, or $150 for effectively unlimited service. AT&T attempted a trial run of its own.

Time Warner's plan was pulled after user outrage and threatened legislative action in New York, home to Rochester, a trial market for the tiers. AT&T's plan was cut short quietly in April last year. In its efforts, however, to enforce network neutrality rules that would prohibit an ISP from discriminating against legal content passing over its networks, the FCC gave the O.K. for such trials to begin again. In a speech announcing the rules, Julius Genachowski, chairman of the FCC, condoned the idea of usage-based broadband, saying, "Our work has also demonstrated the importance of business innovation to promote network investment and efficient use of networks, including measures to match price to cost, such as usage-based pricing."

Why Unlimited Web Access Matters

Proponents argue that such rules benefit consumers by enabling them to pay only for the broadband they use—a common argument is that if your Grandma wants to use the Web only for e-mail, she shouldn't have to pay for a $40 unlimited package—but those arguments conveniently ignore the price inflation occurring at the upper end when an unlimited package suddenly skyrockets to $150, as well as the fact that Grandma may be content with e-mail today, but once her grandchild gets to be a toddler, she may turn to Skype video chat or FaceTime (AAPL) instead. Suddenly, that 2 GB plan may not suffice.

And penning people into Gigabyte gullies tends to keep them from sampling some of the latest applications and services, thus harming innovation. For example, in 2008 the video live streams from the Olympics contained this warning:

"Since the NBC (GE) Olympics on the Go software delivers large video files, it may use a lot of bandwidth. This software is not recommended for people with dial-up or metered broadband Internet access."

At that point, Grandma's hitting "back" on her browser to avoid going over her cap. Plenty has been written how this reaction is a good thing for many ISPs that also have a competitive pay TV offering they want to sell, but it's also fundamentally bad for companies trying to use the Web as a platform for experimentation. Better that broadband have the same influence on innovation as adding more processors to chips did on PC software. It makes the transition from playing Space Invaders to playing Halo (MSFT) possible. And today we're moving toward a streaming society where such sites as Netflix, Pandora, and Facebook are storing our content, our entertainment, and our memories in the cloud.

Tiers and caps are ways to deter those trips to the cloud or make them as expensive as possible. Instead of allowing technology and innovation to move forward, ISPs are seeking ways to turn back the clock to protect their own businesses. It happened in Canada, and it can happen in the U.S. as well.

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