Mediacom

Why cable companies keep pushing metered Internet service

August 9, 2013: 2:24 PM ET

Critics say data caps are aimed squarely at hindering competition from Internet video providers.

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FORTUNE -- Cable companies continue to expand their imposition of data caps on Internet customers in some areas. Critics see it as an attempt to thwart competition from Internet video providers like Netflix (NFLX) that offer alternatives to cable TV.

DSLReports' Karl Bode reported this week that two companies, Comcast (CMSCA) and Mediacom, have both expanded caps or "tiered service." Mediacom, he reported on Thursday, is now offering its metered service to all customers (or imposing it on them, depending on how you look at it.) Comcast, Bode noted on Friday, is expanding the markets in which it is "testing" usage caps beyond Nashville, Tenn., into areas of Kentucky, Georgia, and Mississippi.

Last year, under pressure, Comcast eliminated its systemwide data cap of 250GB per month and announced limited tests of tiered service. In the test markets, Comcast limits usage to 300GB, with users paying $10 for every 50GB they use over that amount.

Mediacom, meanwhile, is imposing metered service on all of its customers for various levels of data usage and download speed.

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Such caps, Bode concludes, "are and have always been about the cable industry imposing price hikes on broadband to offset expected declines in TV subscribers (due to Internet video) and Internet phone customers (courtesy of wireless)."

Cable companies have abandoned the argument they once tried to lodge -- that heavier users caused "congestion" on their networks -- in favor of an argument about "pricing fairness." This is the theory that people who are heavier users of Internet service should pay more for it. This doesn't make much sense either, though, since it doesn't really cost ISPs any more to deliver lots of content to a particular user as it does to deliver just a bit. Most of the costs borne by cable providers are the fixed costs of building out networks, many of which have already been paid off. Variable costs are negligible. Earlier this year, Bernstein Research analyst Craig Moffet said the biggest cable companies' ISP services were "almost comically profitable," with margins of about 97%.

Bode doesn't hold back. Data caps and tiered services, he wrote, are "about predatory mono/duopolists in uncompetitive markets raising your prices because you don't have a choice."

Last year, the Department of Justice said it was investigating whether the cable companies are trying to suppress competition from Internet video providers. The status of that probe is still unknown.

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