The FCC’s curious curiosity about broadband data caps

With less than three months remaining in the current administration, the FCC has released a Notice of Inquiry (NOI) on broadband data caps. Data caps, also called usage-based pricing, are monthly limits on the amount of data that can be downloaded. When a consumer exceeds the data allowance, the consumer may pay an extra charge or have reduced speeds.

The NOI asks numerous questions "to explore" data caps and whether they cause harm to competition or consumers. Unlike a rulemaking, it does not propose regulations.

It's a curious time for such curiosity. The Biden administration is in its closing months, and there will be a change in administration regardless which party wins the presidential election. Meanwhile, the 6^th Circuit Court of Appeals has stayed the FCC's net neutrality order, which seeks to apply utility-style regulation to broadband internet access service. The case is not going well for the FCC, so its asserted authority over broadband in general is very much in question.

It's also curious that the FCC has sudden curiosity about a practice in use for years by internet service providers (ISPs). Usage-based pricing has appeared in FCC orders dating back to 2010, when the Obama FCC spoke favorably of it:

"…prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks."

As Alice in Alice in Wonderland said, "Curiouser and curiouser!"

The Obama FCC recognized that usage-based pricing from providers benefits consumers. By allowing plans that differentiate based on consumption, the agency preserves space for the creation of lower cost options. When ISPs can price plans for heavier users commensurate with their use of the network, providers can offer more options for other, lighter users. Consumers in many other contexts are accustomed to paying different amounts depending on how much they consume, such as restaurants that offer all you can eat for one price or another price a la carte.

And having lower-cost options means more consumers can purchase internet subscriptions, helping to close the digital divide. The International Center for Law and Economics's recent white paper found that "…usage-based pricing can improve broadband affordability and, in turn, increase adoption. That's because, under usage-based pricing, consumers who use less data pay less, consumers who use more pay more, and no group of consumers cross-subsidizes usage by other users."

Despite the obvious benefits, the NOI's decidedly negative tone makes the FCC seem curious about how it can limit usage-based pricing and appears to be laying the groundwork for a future rulemaking. While the FCC majority has repeatedly promised not to regulate broadband pricing, rules limiting or prohibiting usage-based pricing would be de facto rate regulation. Such needless intervention would serve as a disincentive to investment and innovation by imposing regulatory oversight on how ISPs can price their offerings and earn a return on their services.

With cable, fiber, mobile, fixed wireless, and improving satellite options, the broadband marketplace is more competitive than ever. A hallmark of a competitive marketplace is differentiation in products, including through different pricing structures. Usage-based pricing is part of that differentiation.

Rather than inquiring about a pro-consumer pricing structure, the FCC should be curious about how to foster consumer choice through investment and innovation. It should allow marketplace competition to determine which offerings win or lose.

A proverb holds that curiosity killed the cat. Let's hope the FCC's curiosity doesn't kill a practice that benefits consumers.

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