Are Cable Companies Using Data Caps as Weapons?

Posted by · June 13, 2012 3:17 pm

Internet Access Here SignAlthough it’s hardly a new concern, the question of whether cable companies are targeting their online streaming competitors through the instatement of data caps is coming back to the forefront—thanks to the Justice Department. A Wednesday report from The Wall Street Journal reveals that the DOJ has launched what appears to be an industry-wide anti-trust investigation.

Citing clandestine insider sources, the WSJ reports:

Justice Department officials have spoken to several online video providers, including Netflix Inc. and Hulu LLC, those people said. Investigators have also questioned Comcast Corp., Time Warner Cable Inc. and other cable companies about issues such as setting data caps, limits to the amount of data a subscriber can download each month, these people said.

Given that most cable companies are also the gatekeepers to Internet access, which just so happens to be the means by which subscribers access cable alternatives like Netflix and Hulu, the concern here is abundantly clear—and a valid one nonetheless. As consumers continue to migrate toward on-demand—not to mention cheaper—access to popular programming, the appeal of traditional cable is unsurprisingly losing much of its luster. Naturally, cable companies have been feeling the financial pressure to stop the mass exodus.

“Having invested billions of dollars building their networks, some pay-TV companies have shown little inclination to get out of the business of packaging television channels and become mere conduits for other companies’ data,” the report continues. “Some major entertainment companies also have an interest in preserving the current model of television viewing because they want cable companies to take bundles of their channels, rather than just cherry-picking the most popular ones.”

Enter data caps.

The clear concern here is that cable companies are placing caps on their Internet users in an effort to prevent subscribers from getting their media fill from online streaming services, creating a demand for an alternative outlet that (surprise, surprise!) these companies just so happen to offer as well. According to the report, the primary targets of the DOJ investigation are providers like Comcast and AT&T, which allegedly employ data caps “to stop heavy users from overwhelming their networks.”

English: Comcast service van, Ypsilanti Townsh...Not unlike the ongoing fear that Google might be using its King of Search status to favor its own products and services, the key apprehension among Internet video providers is that cable companies are using their control over Internet access both to keep viewers from leaving, as well as give favor to their own online streaming offerings.

And these concerns are hardly unfounded.

A few months back, Comcast announced that use of its Xfinity app on the Microsoft Xbox would, unlike the use of other streaming service, not be counted against subscribers’ data caps. Reacting to the announcement, Netflix CEO Reed Hastings took to his Facebook page to express his outrage. Given its implications regarding net neutrality, it’s this particular policy that the Justice Department is paying specific attention to in its investigation of Comcast.

After acquiring NBCUniversal last year, the cable company was signatory to an agreement specifically stating that it would not “unreasonably discriminate” against companies that rely on its infrastructure to transmit data, or give favorable treatment to its own content.

Prior to the announcement of a federal investigation, Comcast insisted that it has remained above the fray, maintaining that it has “consistently treated all video carried over the public Internet the same whether it comes from our sites or anywhere else on the public Internet” (emphasis added). Although the company maintained that its Xfinity service operates over a private network and, therefore, is not subject to the same constraints, Comcast did suspend its data caps to begin searching for alternatives.

In addition to data caps, the DOJ is also reportedly investigating these companies’ use of cable subscription verification to access certain online programming, as well as the inclusion of anti-competitive “most favored nation” clauses in programming contracts.

Given Attorney General Eric Holder’s seemingly sympathetic outlook on the issue, counting himself among consumers who increasingly prefer online movie and TV show streaming, the outlook on the matter does seem promising for consumers hoping to rid themselves of their data cap shackles. However, until legal action is actually brought against these companies, it’s difficult to get too excited.

What do you think? Are cable companies using the limited bandwidth argument simply to protect their own interests? If so, do you think any real legal action will come of it? Share your thoughts in the comments below.

For more on the DOJ data cap investigations…