Bandwidth Caps and Market Signals

Blog, Disruption, Les Routledge

Canada’s major Internet service providers have employed bandwidth caps, data usage fees, and throughput limits to discourage heavy use of their services.  Recently, Netflix expressed concerns about the viability of their movie-on-demand service in Canada if the current caps and usage charges remain in effect (Netflix Doubts Future)

Bandwidth caps and excess usage fees have been employed by major ISP since about 2006.  The rationale for the caps and the usage fees is that they help providers manage the level of traffic on their networks and provides them with a means to limit network congestion (see Internet Usage Caps)

“There’s exploding bandwidth consumption,” Mr. Bibic says. “You need to keep up with that. We do it by traffic management when we have to, during peak periods. And we invest hundreds of millions of dollars in our network. And the third one is pricing. Pricing is the CRTC’s preferred method for us to tackle this issue.”

The other traffic management tool that has been employed is limiting throughput (sometimes called throttling) for heavy users after a short term bandwidth cap has been exceeded.  For these users, the effect is degraded service and less bandwidth capacity that can make viewing video content, participating in video-conference calls, or even use of audio services like Skype a frustrating experience.  Adopting cloud computing services is difficult if not impossible if performance will degrade because of bandwidth limits.

While bandwidth caps and throughput limits may make sense as a short term measure to deal with unexpected increases of spikes in traffic, does it make sense that the definition of “short term” has now extended to nearly 5 years?  Are bandwidth caps and throughputs limits evolving with customer usage patterns so only they apply to exceptionally heavy users, the so called bandwidth hogs?  Are the caps and limits going to evolve upward in capacity to accommodate new services like Netflix or the use of software systems such as cloud computing by more and more customers or will they remain fixed at current levels?  Are providers really keeping up with “exploding bandwidth consumption“?

If bandwidth caps do not evolve towards increased capacity, Canada could risk becoming a laggard in the adoption of efficient productivity tools such as cloud computing systems and tele-commuting systems.  Will Canadian home office workers be able to function effectively or will they be placed a competitors operating in other countries?

Beyond the cost incurred by individual customers, we need to consider broader economic, social or environmental costs that result from bandwidth caps and capacity limits.  If tele-commuting and tele-work becomes more difficult or more expensive to conduct from Canadian locations, we could risk seeing that work migrate to competitors in the USA or overseas.  Accessing tele-education services could become problematic for low income households.  The environmental could suffer if bandwidth limits deter the substitution of travel with electronic communication.

Fixed bandwidth caps that do not evolve with customer usage patterns present a problem for Canada.  Our policy framework in Canada needs to evolve so that providers receive stronger market signals to upgrade the capacity of their networks and the richness of their service offering instead of the current practice of attempting to limit demand and innovation.