Major sports leagues earn BILLIONS of dollars every year. That money comes directly from YOUR cable bill.

Do Comcast Data Caps Violate the Sherman Act?

Comcast logoLet me preface this article by stating that I am not a lawyer, and this is not a full legal analysis. However, given that nearly every article published about Comcast’s data caps only discusses the net neutrality aspects, I felt it necessary to look at them from a different perspective.

First, the back story:

In addition to quietly announcing hefty increases on its hidden fees and never fixing any customer issues unless the press reports on them, Comcast — still the biggest cable company and internet service provider in America — raised the ire of both net neutrality advocates and many of its customers by instituting 300-gigabyte monthly data caps in areas where there’s little to no competition for its internet service. Use more than 300 GB of data, and Comcast charges you an additional $10 for every 50 GB, and if you want unlimited internet, it will cost you an additional $35 a month.

Comcast CEO Brian Roberts tried to explain why these caps were useful without sounding like a corporate stooge. He pretty much failed:

“They’re not a cap. We don’t want anybody to ever not want to stay connected on our network… We’re just trialing ways to have a balanced relationship. You can watch hundreds of shows and movies and other things before you hit these levels, many devices, but I don’t think it’s illogical or something people should be paranoid about… it’s not that different than other industries.”

Except, of course, for the fact that most other industries don’t wait 15 to 20 years to attach limits to an unlimited business model. Customers expect high speed internet to have no such limits; they play a flat fee and have unlimited access to everything. Comcast’s data cap– excuse me, “usage-based pricing” flies in the face of what ISPs have done for years. In fact, Comcast has practically admitted that the caps serve no technical purpose and do nothing to alleviate network congestion. Instead, they’re about offering “more choice, flexibility and fairness for all customers”.

In its quest to promote “fairness”, however, Comcast is clearly going against market trends. Here are a few relevant tidbits from a recent Sandvine report on broadband usage in the U.S.:

  • Real-Time Entertainment (streaming video and audio) traffic now accounts for over 70% of North American downstream traffic in the peak evening hours on fixed access networks. Five years ago it accounted for less than 35%.
  • Netflix (37.1%), YouTube (17.9%), and Amazon Video (3.1%), the top three sources of video traffic on fixed access networks in North America, all saw an increase in traffic share over the levels observed earlier in the year.

According to Sandvine CEO Dave Caputo:

“Streaming Video has grown at such a rapid pace in North America that the leading service in 2015, Netflix, now has a greater share of traffic than all of streaming audio and video did five years ago. With Netflix, YouTube, Amazon Video, and Hulu increasing their share since our last report, it further underscores both the growing role these streaming services play in the lives of subscribers, and the need for service providers to have solutions to help deliver a quality experience when using them.”

Worrying about usage charges — or being forced to give Comcast $420 more per year not to worry about them — doesn’t exactly sound like a quality experience. It sounds more like Comcast is trying to drive TV viewers toward its own services instead of competitors’ services. Sling TV CEO Roger Lynch has already suggested as much:

We see concerning things happening if you look at cable companies like Comcast now instituting data caps that just happen to be at a level at or below what someone would use if they’re watching TV on the internet – and at the same time launching their own streaming service that they say doesn’t count against the data cap. It’s something we’ve been warning Washington about for years, and it’s a risk to OTT (over-the-top video) in general. We’re Net Neutrality proponents, and want to make sure that rules are implemented so that it really is a level playing field for new players like us.

Comcast’s data caps, however, are more than just a net neutrality issue, for one key reason — Comcast owns NBC Universal, and NBC Universal has a large number of channels on the cable TV system. Those channels lose money if customers dump pay TV in favor of OTT video, and Comcast is making it really easy to keep its customers tied to pay TV.

comcast-netonlycomcast-netplustv

Of course, Comcast doesn’t include the $3.50/mo. local channels fee and the $1.00/mo. regional sports network fee, but even with those fees tacked on, 75 Mbps broadband with pay TV is more than $22 cheaper per month than 75 Mbps broadband by itself. Even after Comcast jacks up the bundle price after 12 months, the bundle is only a few dollars more per month than broadband only.

At least four NBCU-owned channels are included in that bundle. First, there’s NBC’s broadcast network, which is slated to collect $500 million in retransmission fee revenue in 2015. With a local NBC channel presumably in 99 million pay TV households in the U.S., NBC collects an average of $0.42/month per household. Three other NBCU networks are also in that bundle — USA Network, E!, and The Weather Channel. USA has a carriage fee of $0.83/month. For E!, it’s $0.26/month, and for The Weather Channel, it’s $0.16/month.

By pushing “usage-based pricing” on its customers and encouraging them to stick with a low-priced bundle for video services, Comcast is able to funnel roughly $20 a year of each customer’s money into channels that it owns — money that might otherwise go to streaming video-on-demand (SVOD) services like Netflix and Amazon Video. With 22.2 million video customers still on board, Comcast can protect $444 million of NBCU revenue with data caps. More importantly, that video doesn’t count against Comcast’s data caps.

Now let’s consider the potential Sling TV customer, who might watch ESPN and TNT during basketball season and other SVOD services the rest of the time.

comcast-25netonlycomcast-25bundle

Sure, that Performance internet only costs $29.99/month by itself. What happens if you want to stream a lot? Getting unlimited internet adds $35 to the price. Throw in Sling TV for $20/month and Netflix for $10/month, and suddenly, you’re paying $95/month. That $80/month bundle, even with the hidden costs, seems like a better deal, right?

Here are all the NBC-owned channels included in that bundle, including how much money they receive per customer (via SNL Kagan, though some of the numbers below are estimates based on old data):

comcast-owned-channels

Going with the bundle to get your ESPN fix at a lower price ensures all of these channels get paid — $3.52 per month, or $42.24 per year that gets funneled into NBCU cable networks, plus the $5.04 in retransmission fees that NBC’s broadcast network receives.

What’s more, Comcast owns several regional sports networks in many of its customer areas that also get paid through this bundle.

Comcast Regional Sports Networks 2015

So by using its market position to make Sling TV more expensive, Comcast is not only trying to protect millions in NBCU carriage fee revenue, but it’s also trying to protect more than $1.2 billion in carriage fee revenue for its regional sports networks. Plus, by going with the bundle, your internet still has that soft 300GB monthly cap on it, and oh, by the way, there’s no rollover data.

All of this begs the question: If Comcast is using its data caps to push customers’ money toward channels it owns and away from competitive online video services, how are they not abusing their market position in such a way that violates the Sherman Antitrust Act?

Passed under the presidency of Benjamin Harrison, [The Sherman Act] prohibits certain business activities that Federal government regulators deem to be anti-competitive, and requires the Federal government to investigate and pursue trusts.

It has since, more broadly, been used to oppose the combination of entities that could potentially harm competition, such as monopolies or cartels.

This is a question that needs to be asked, because Netflix, YouTube, Amazon Video, Sling TV, HBO Now, and even Hulu, which is partially owned by Comcast, are all legitimate competition for Comcast pay TV services, and Comcast’s data caps clearly make them far more expensive than they would be otherwise. Perhaps if Comcast treated its data caps more like T-Mobile’s “Binge On” service and allowed anyone to sign up to be “zero-rated” (i.e. allow customers to use their services without it counting against a data cap), this question might not matter as much, even with the known dangers zero-rating presents to the open internet. Comcast, however, is only zero-rating services that it owns, funneling money into channels it owns, and using loopholes to circumvent net neutrality rules.

Thus, attacking Comcast’s “usage-based pricing” from a net neutrality perspective is not enough. The FCC could field 13,000 more complaints and still have their hands tied. If the Federal Trade Commission were able to get involved, however, Comcast might find itself struggling to justify those caps. More astute legal minds than mine might want to consider this question.

2 Responses to Do Comcast Data Caps Violate the Sherman Act?

  1. I’ve wondered this very thing myself. You make some very compelling arguments. I don’t have Comcast. I have Armstrong Cable which has a 200Gb/month cap. One other thing that concerns me is these companies claim they can measure data use by 1/100 Gb, but charge $10/50Gb. Why can’t they charge per Gb?

  2. A few months ago I wrote a letter asking the US Department of Justice to investigate Armstrong’s data caps as a violation of the Sherman Anti-trust Act. I received a call today from the DOJ. While the gentleman was very nice, and very sympathetic to those of us in rural America only having one choice of Internet providers, they could not investigate Armstrong at this time, due to the way the laws are written. Armstrong is a natural monopoly. Other Internet service providers are permitted to serve us, but they choose not to.

Leave a Reply


     

Site created by Tenth Key Digital Media.