Limits on consumers’ Internet use fuel calls for federal investigation

Liberals and consumer advocates are pushing the Obama administration to investigate Internet providers for limiting the amount of online material that customers can consume each month.

Critics of data caps say they are unnecessary and are unfairly used by monopolists to squeeze more profits out of consumers.

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Advocacy groups including Public Knowledge and Free Press are urging the Federal Communications Commission (FCC) to review the practice and are lobbying Congress to hold hearings.

“Data caps can create an artificial scarcity in the broadband market that limits consumer choice and hinders the creation of new competitive content online,” Christopher Lewis, Public Knowledge’s top lobbyist, said in a statement last month.

Sen. Ron Wyden (D-Ore.) introduced legislation last month to regulate data caps.

Internet providers defend the caps and say customers who use the Internet the most should pay more.

The issue could flare into a major regulatory battle in the new Congress.

Many broadband Internet providers charge extra fees to customers who surpass their data limits, while others slow down or cut off service entirely.

Cellphone providers also offer various data tiers and charge customers hefty fees if they surpass their monthly limits. Industry leaders AT&T and Verizon have eliminated their unlimited data plans altogether.

Michael Weinberg, an attorney for Public Knowledge, argued that data caps discourage people from using data-heavy services, like streaming high-definition videos.

As more TV shows and movies become available on websites like Netflix and Hulu, consumers may choose to watch TV exclusively via the Internet, dropping expensive cable TV packages.

That worries cable companies like Comcast and Time Warner, which provide both TV and Internet service.

Weinberg said cable companies might use data caps to prevent customers from watching all of their TV on the Internet, thus forcing them to continue paying for cable TV packages.

Netflix fears that the cable companies are looking for a way to kill off competition and has lobbied Congress to investigate data caps.

“When you couple limited broadband competition with a strong desire to protect a legacy video distribution business, you have both the means and motivation to engage in anticompetitive behavior,” David Hyman, Netflix’s general counsel, said during a House hearing last year.

A report last month from the New America Foundation, a public policy group, concluded that data caps are “motivated by a desire to further increase revenues from existing subscribers and protect legacy services such as cable television from competing Internet services.”

But a separate report, funded by the cable industry, found that data caps actually benefit consumers.

The researchers wrote that data tiers allow Internet providers to offer cheaper Internet service to customers who just want to check email and browse the Web, while charging more to customers willing to pay for hours of video streaming.

“Our point is we see this as a consumer fairness issue,” said Brian Dietz, a spokesman for the National Cable and Telecommunications Association (NCTA), an industry lobbying group. “Every consumer doesn’t have the same bandwidth needs.”

Wyden’s bill, the Data Cap Integrity Act, would require the FCC to set standards for how Internet providers measure data and would require that data caps be designed to manage network congestion without unnecessarily discouraging Internet use.

NCTA called Wyden’s bill “ill-conceived legislation” that “ignores the substantial pro-consumer benefits of usage-based pricing.”

“Usage tiers give consumers more choices to better fit their bandwidth needs, and they rightly distinguish between low-volume users and high-volume users, as is true for many products and services,” the group said.

It is unclear whether the FCC plans to take any action on data caps.

Chairman Julius Genachowski has given conflicting signals, at times suggesting he is concerned about caps and on other occasions saying there is nothing wrong with the practice.

Whether the FCC takes action on data caps might depend on the outcome of Verizon’s lawsuit challenging the FCC’s net-neutrality regulations, which require Internet providers to treat access to all websites equally.

Verizon argues that the FCC has only limited authority to regulate the Internet. If the court agrees, the FCC could be powerless to address concerns over data caps.

At least one commissioner, Republican Ajit Pai, believes that his Democratic colleagues will try to push data cap regulations if they beat Verizon in court.

“I would not be surprised if the FCC looked into whether we should stiffen our oversight of the network management practices of wireless broadband providers and whether we should begin to regulate usage-based pricing,” Pai said in a speech last month. “With a court victory under the commission’s belt, I believe that the net-neutrality order would be the first step, not the last, on our regulatory path.”