DoJ May Put Kibosh on Cable Cos.' Data Caps
Jun 14, 2012 12:00 PM PT
The Department of Justice is investigating whether cable companies such as Comcast and Time Warner are violating antitrust rules through practices that limit their broadband customers' access to online video, according to a Wall Street Journal report citing anonymous sources.
The Justice Department apparently has questioned these companies, as well as other cable providers and online video sites Netflix and Hulu. Its queries reportedly focused on data cap policies that limit how much content a subscriber can download each month.
Time Warner Cable and Comcast did not respond to our requests to comment for this story. The Department of Justice declined to comment.
Cutting the Cord
It is easy to understand why cable companies that also provide Internet access would want to limit broadband data use.
The ranks of "cord cutters" -- that is, people who drop their pay-TV services in order to stream free or vastly cheaper content from sites like Hulu, Amazon Prime and YouTube -- are swelling.
Nine percent of individuals polled said they had already cut their pay-TV cord and another 11 percent were considering doing so because they could watch almost all of their favorite shows online, in the sixth edition of Deloitte's "State of the Media Democracy" survey, released early this year.
In addition, 15 percent of respondents said that they would most likely watch movies, television programs, and videos from online digital sources in the near future.
All is not lost for cable providers, though. Americans value cable TV and satellite TV above most other services, and using a DVR is regarded as the second-best way to watch one's favorite TV show, the survey results indicate.
"The challenge for cable companies is that their business models rely on revenue streams from both broadband and cable subscribers," Ryan Radia, an analyst with the Competitive Enterprise Institute, told the E-Commerce Times.
From that perspective, it would be natural for a cable company to engage in practices that would encourage subscribers to stay with pay-TV, such as data caps on their broadband service, he continued.
Data caps are legal under antitrust regulations and even meet the threshold of Net neutrality, another legal -- and far more dubious -- concept, Radia argued.
Net Neutrality vs. Antitrust Law
Antitrust concerns are the purview of the Justice Department, and they are based on established law. Net neutrality is the domain of the FCC, Radia said, and it is based on a regulatory decision that has not been sanctioned by Congress.
Leaving that aside, data caps meet the standards of Net neutrality as well, he pointed out. "We haven't seen reports of a cable company blocking or degrading service to a particular content source, which is what Net neutrality is against."
A Nuanced Issue
It may be more complicated than that, Roger B. Goff, partner with Wolf, Rifkin, Shapiro, Schulman & Rabkin, told the E-Commerce Times. "Antitrust is one of the more difficult areas of the law," he said.
Essentially, it appears the Department of Justice may be concerned that "cable companies are using their unilateral control of digital data access in many households to create circumstances which give the cable companies' own programming an unfair technical advantage over Internet-based competitors," he said.
Cable companies' technical advantage creates a disincentive for consumers to use the alternative programming sources, Goff said.
It also could allow cable companies to charge higher prices and still maintain their market share. "That is bad for consumers," he added, "who generally rely on market factors to assure that they are paying the best prices for their goods and services."
Cable companies will argue that because of the massive increases in the amount of data that their Internet networks are being required to carry -- with the increased use of the streaming services being a substantial part of this increased data traffic -- they must impose caps in order to be able to provide a decent level of service to everyone.
However, these data caps do not apply to the cable company's own private network -- such as Comcast's Xfinity -- which carries the cable company pay-per-view and other proprietary programming from which the cable company draws additional revenue, Goff pointed out.
"Thus, the data caps on the Internet side of the cable companies' business could have the effect of making the cable companies' own programming a more attractive alternative -- or in some cases, perhaps even the only alternative," he said. "If consumers know that watching too much Netflix or Hulu could cause them to lose their Internet service at some point in the month, they will naturally limit their use of those services. "