The Federal Communication Commission recently announced that it had officially launched an investigation into how broadband data caps affect consumers and competition. Specifically, the commission stated the investigation, or Notice of Inquiry, would explore limits on data usage and seek public comment on whether such limits warrant government intervention to ensure consumers have reliable access to broadband internet.
While there is nothing wrong with an agency seeking more information, the commission’s framing of the issue shows that it is considering rate regulation by another name. Such an outcome would be disastrous not only for the broadband market but also for the very people the commission aims to protect — consumers.
The debate over data caps is not new. For years, commentators have debated the merits of usage limits — commonly known as usage-based pricing — where internet service providers control how much data or bandwidth is available to consumers. This is typically done through the different service plans that ISPs sell to consumers. Different plans cost different amounts and offer different limits on data usage. For instance, unlimited data plans tend to be more expensive than those with data limits, which charge users when they exceed those limits.
The way critics portray it, consumers have a seemingly unsatisfiable demand for data that is propelled by a growing reliance on smartphones and connected devices for social media, streaming services and other data-heavy applications. That high demand has made broadband no longer a nice-to-have service but a must-have service that is essential for everyday life. As such, they think it is unfair for ISPs to restrict data usage, which they fear will lead to artificial scarcity, worse service and higher prices. Consequently, they seek federal intervention to halt such practices to ensure broadband access remains equitably available to everyone.
It appears the commission agrees with at least some of these arguments. For instance, in explaining its reasoning for the Notice of Inquiry, the commission implies that any restrictions on capacity are bad by default since they “persist despite the increased broadband needs of consumers.” In other words, the commission seems open to new rules — but only under what it views as the right circumstances.
Unfortunately, regulating data caps would be a huge policy mistake regardless of its legality. Those regulations would undermine the role that price differentiation plays in honoring consumer choice, and it would complicate the distribution of an increasingly scarce resource.
The term “data cap” is misleading because it assumes that consumers can access only a certain amount of data. This is not the case. Most data plans are pay-as-you-go plans, meaning the customer can purchase more data at any time, or choose a plan from the beginning that offers more data. This allows the customer to decide how much data they want and when they want it, and it offers them savings since limited data plans typically cost less.
Preventing ISPs from offering different plans eliminates consumer choice, potentially resulting in a small number of uniform plans that are more expensive and require consumers who do not use that much data to pay for those who do. In effect, regulating data caps would result in de facto rate regulation. While the FCC would not directly set market prices, it would do so indirectly by — as Commissioner Brendan Carr noted in his dissent — controlling “the price of broadband capacity.”
Such a possibility is extremely troubling, especially since the commission has repeatedly stated that it would not partake in rate regulation, acknowledging that price controls are a bad idea. For instance, during a 2022 House Subcommittee on Communications and Technology meeting, FCC Chairwoman Jessica Rosenworcel “expressly disavowed” any support for rate regulation, noting that rate regulation had previously been tried with cable and “didn’t work out well.”
More recently, the commission reiterated this position in its net neutrality rulemaking, writing that rate regulation is a “hallmark of utility regulation” and that “regulating rates is not its preferred approach.”
For the commission to turn around now and regulate data caps would be going back on its word. It would also undermine a market system that Commissioner Nathan Simington notes “ensures that built network capacity is not exhausted through uncapped allocation of finite network resources.” Indeed, if broadband is truly the necessity that many think it is, then the commission should care immensely about preserving usage-based pricing. Usage-based pricing guarantees that data and the radio spectrum it relies on are used efficiently.
As the commission continues to gather information about data caps, it should be careful not to go down the path of rate regulation, a path that has already been traveled before and is sure to lead to unintended consequences for consumers such as fewer and more expensive data plans.
