The use of monthly broadband data caps has been an issue of public policy debate ever since their introduction. Proponents and opponents of data caps make claims that appear to conflict about almost every aspect of data caps, including:
• whether the purpose is to manage congestion, to increase fairness, and to recover the cost associated with heavy users, or to increase profit and to protect incumbent pay-television services;
• whether data caps result in lower service prices or monetize scarcity;
• whether their use results in greater network capacity and higher download and upload speeds;
• whether data caps increase broadband Internet subscription;
• whether data caps reduce congestion; and
• whether they increase or decrease consumer surplus.
It is the goal of this paper to provide a critical survey of both the claims and the academic literature on the use of broadband data caps. The literature includes papers that apply the economics literature to predict the impact of data caps; that present empirical results from the use of data caps; and that propose analytical models of data caps to predict that effects of data caps on broadband service plans, subscription, congestion, and/or welfare.
We first review conflicting claims regarding the purposes of data caps, the relationship between monthly data usage and network congestion, and conflicting claims regarding competition.
In the next five sections, we evaluate the conflicting claims regarding the effect of data caps on service prices, speeds, capacity, subscriptions, usage, congestion, and consumer welfare. The progression of the analysis - from aspects of service plans, through effects on the network, to effects on welfare - allows for empirical and analytical results about some effects to be applied to the analysis of other effects.
In each section, we critically survey the academic literature, which often seems to produce conflicting conclusions. For each such apparent conflict, we examine the basis for the conclusions, including the assumptions of analytical models and the settings for empirical data. We consider the following economics and engineering aspects of the model or data:
• fixed or mobile broadband;
• monopoly, duopoly, or competitive markets;
• the characteristics of the data cap;
• whether multiple service tiers are considered;
• the network capacity model;
• the network congestion model; and
• the utility function.
Given these aspects of the model or data, we analyze the limitations inherent in each paper’s conclusions. With these limitations in mind, we find the aggregation of apparently conflicting conclusions paints a more consistent and comprehensive picture of the effects of data caps. We summarize what we believe the literature concludes about the effects of various types of data caps in both fixed and mobile broadband.
In the concluding section, we discuss how data caps may be evaluated under the FCC’s 2015 Open Internet Order. We analyze whether various types of data caps would qualify as reasonable network management. For those that don’t, we analyze the pertinent factors to be used in assessing whether a data cap satisfies the Order’s general conduct rule: competitive effects; effect on innovation, investment, or broadband deployment; and end-user control.
