Comcast’s Terabyte Experiment

Comcast is experimenting with a terabyte data plan in a dozen or so trial areas that will recover more of the cost of providing broadband service from the heaviest users. Meanwhile, federal regulators have announced that three other cable companies will not be permitted to charge usage-based prices nor impose data caps for seven years after their merger takes effect. These companies will be forced to charge all consumers prices based on the average cost of service.

The approach Comcast is taking is much smarter both from a business perspective and for consumers. It could lead to higher broadband adoption by allowing low-data users to buy plans with low data allowances at lower prices, making home broadband something everyone can afford. What the government never seems to understand about this industry is that when prices fall consumption (and profits) increase. Prices still have to cover costs, but there is a solution to cutting costs and that is investment in new and better technology, not government edicts.

Government-mandated price averaging will make it more difficult for some of Comcast’s competitors (in this case, Charter Communications, Time Warner Cable and Bright House Networks) to appeal to a large number of consumers who don’t have a broadband connection at home, yet who believe that a home high-speed connection is a major advantage — not least when it comes to looking for a job or accessing government information. The share of Americans with broadband at home (67%) has declined, according to the Pew Research Center, while the number of “smartphone-only” adults (13%) increased between 2013–15. According to Pew, 33% of those who lack broadband at home cite the monthly subscription cost is the primary issue. Home broadband users typically pay a flat rate for their service, while usage-based rates give smartphone users more control over their monthly spending.

Comcast’s terabyte data plan will allow it’s customers who want to stream more than 700 hours of high definition video, play more than 12,000 hours of online games and download more than 60,000 high resolution photos per month the option to purchase additional data. Less than one percent of the company’s customers fall in this category. The typcal Comcast customer uses only 60 gigabytes per month — 940 gigbytes less than a terabyte. If these consumers don’t want to pay for someone else’s broadband there’s nothing they can do about it. They currently have no choice but to subsidize heavy users — i.e., pay a price that reflects average consumption.

Federal regulators are hoping to “help consumers by benefitting OVD competition.” Translation: they’re trying to help online alternatives to cable television become more profitable by making broadband service expensive enough in the aggregate — and in such a way — that even inefficient firms can make a profit. This is an example of what people mean when they refer to promoting competitors, not competion. When government talks about promoting “competition,” it usually means cross-subsidies that favor one class of users at the espense of others. These efforts have failed nearly every time. Aside from allocating more spectrum for wireless services, there is very little the feds can do to promote meaningful competition in cable or broadband.

If Comcast is on to something here, which I think it is, you can bet there will be an outcry from its competitors and/or it’s competitor’s allies (the clients of the regulatory state) — not to mention the politicians who do their bidding.