ISP Data Caps Won’t Affect Apple Cloud Services

| Analysis

Various ISPs have been invoking monthly data caps. The caps aren’t likely to affect average Apple customers, but they will put a stop to unlimited TV viewing so that the ISPs can better compete with their own TV services.

As we’ve grown up on the Internet, we’ve become accustomed to the ISP policy of unlimited data usage. It was a good marketing approach in the early days of the Internet and, in any case, ISPs had no way to measure your usage anyway.

Internet World

Flash forward to 2011, and it’s a whole new ball game. We have: cord-cutters, Netflix, Hulu, Apple TV, Boxee, YouTube, MobileMe, DropBox, pervasive Wi-Fi in the home, Microcells, and many other services that have become part of our Internet life. Our usage has skyrocketed.

In addition, the major ISPs like Comcast Xfinity and AT&T’s U-verse are finding that customers are increasingly moving to Internet television in a way that harms their own TV & movie offerings. (That’s because companies like Apple and Netflix have made the buying and watching experience superior to what’s been traditionally offered.) Plus a few users with unlimited privileges can, in some cases, reduce the quality of service for their neighbors. Finally, IPv4 addresses are exhausted and moving to IPv6 and adding massive fiber capacity is expensive. There are emerging good reasons to place caps on residential customers in the minds of the ISPs. The size of the caps reveal what the ISPs are thinking.

Some questions we face are why these data caps are being invoked now and whether some kinds of emerging cloud services would somehow be harmed by these caps. To take the argument even further, one might fantasize that Apple’s long term, one billion dollar investment in a data center at Maiden, North Carolina could be in peril due to these emerging caps.

I don’t think that will happen, and I think this needs some deeper analysis. We have to isolate routine cloud services, some data backups, data syncing, and even streaming music from video.

We Already Have Part of the Answer

Let’s take Comcast as an example. Comcast’s own web pages that show your monthly data usage make it clear that 99 percent of its customers fall well below the 250 GB limit. That’s an important statement in itself. It reflects the realities of the current usage by its 20 million customers.

So the first question to ask is whether any new cloud services will push users to their cap limits. That depends on the nature of those services. I think we already know part of the the answer: a good fraction of those 20 million customers are already using Apple’s MobileMe, iTunes and Apple TV/Roku/Blu-ray players with Netflix, etc. and they’re not routinely approaching their caps. In my case, I use the Internet extensively in the daytime plus my wife and I are watching a few Apple TV or Netflix movies each week and not nearly getting into trouble with Comcast. It’s doubtful that the (rumored MobileMe replacement) iCloud, whatever services are supplied, will dramatically increase usage because Apple is aware of customer habits and the limits of the Internet.

Cap Motivation

It’s one thing for customers to browse the Internet, e-mail photos, watch a few movies, buy some music and back up a few GB of important data. It’s another thing when Internet TV services compete with the ISP’s own TV offerings. (The federal government should never have allowed that conflict of interest to emerge with ISPs, but we’re stuck with it now.)

Continuing with the Comcast example, I am sure the company is aware of and concerned about the competition for TV services, the so-called cord-cutters. While the numbers of cord cutters are low now, it’s a new and alarming trend that could get out of control. Unlike data or music, video is huge in terms of data sizes. For example, a full length movie in HD is about 2-3 GB and a 42 min TV show in HD is roughly a gigabyte. So if your TV habits on the Internet start to mirror the average household’s habits of 6 hours of TV per day, it would be easy to approach or exceed your cap. All things being equal (and they aren’t) that could result in many more than one percent of its customers getting in trouble as they naturally move to watching more and more TV on the Internet.

Will Comcast raise the cap over time? Will cord-cutters start to complain, vocally, to the federal government? Will Comcast get off the hook by claiming a lack of capacity? We don’t know yet.

What we do know is that usage caps effectively throw cold water on the idea of customers duplicating, on the Internet, their historical TV watching of 6 hours a day. For example, with Comcast, if a user has been consuming 30-50 GB per month and adds 180 GB (30 x 6) of Internet TV, that user would be right up against the Comcast cap. I suspect the 250 GB number is cleverly set in that regard.

Conclusion

These new caps likely won’t affect our routine operations in the cloud. Even the best Internet speeds are only adequate to back up a few GB of data. We’ll continue to work with iTunes and music purchases, MobileMe, some movie and TV watching (from our favorite sources), whatever iCloud turns out to be, maybe music & TV streaming, just as we have been doing for the past few years. What the caps do is help the ISPs manage growth and costs, but also put a stop to the allure of unlimited, wholesale Internet TV — so that the ISPs, who have vested interests in delivering their own content, can better compete. As for typical Apple customers, I think we’ll continue to be hardly aware of the caps.

As an aside, why would one want — or not want — to make that big switch? Cut the cord? That’s the subject of my next analysis.

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Comments

James Cude

Did a cable executive write this article? How is this a good thing for anyone but the ISPs and networks?

Aaron Fothergill

250gb a month data caps might not damage cloud services for US desktop customers, but in places like the UK where 5gb caps are ‘normal’ for desktops and 500mb caps are the norm for mobile (as they are in the US too I believe), they make any sort of internet based service beyond your email impractical.

Lee Dronick

I have AT&T DSL and I just checked my data use history

Apr 12.2 GB
Mar 13.7 GB
FEB 14.8 GB

Most of of the usage is downloads, uploads average 2 GB

KitsuneStudios

I’ve been dealing with caps though Rogers in Canada for a while. 60GB on broadband, 6GB on mobile.

Video, especially HD, is the big cap-killer. The only two times I’ve ever hit the 60GB cap was trying to download multiple complete TV series. It takes about a week of having “Top Gear” on in the background on Netflix to wipe out a month’s worth of downloads. Nothing else seems to come close.

At the moment, this is also partially piracy prevention; people download illegally far more than they actually buy.

I’m a “cord cutter” here, no TV, no land line. I still stick with dvd/blu-ray for most of my movies though, and I’m only a casual gamer (I.e. 1 new a-list game/month + online gaming)

(I’ve also never hit even a 500MB cellular cap, but that’s because after 3 years Rogers is still Edge network only in this area. It’s hard to break a gig on dialup speeds.)

ilikeimac

I sure would be upset if Verizon FiOS followed suit, especially if they limit me to 250GB like Comcast and AT&T would. With my 25Mbps connection it would less than 23 hours at full tilt for me to hit that quota.

John Martellaro

Comcast results for me:

Apr 30 GB
Mar 23 GB
Feb 14 GB

And I consider myself a heavy user, testing equipment, watching movies, YouTube, etc.

domsin

I thought we were heavy users.  My family watches lots of movies on Netflix and internet for home business during the workday.  Still, not even close to the 250 GB limit on Comcast. 

Feb 28 GB
Mar 32 GB
Apr 24 GB

One note: we don’t stream HD movies on Netflix.

Nemo

John:  How can I put this gently.  Justifying data caps on the grounds that it better allows integrated ISPs—that is, ISPs that provide traditional co-axle and/or new IP cable and Internet service—to compete with themselves is absurd.  By being in both businesses, integrated ISPs, such as AT&T or Comcast, can foreclose competition for movies and TV in the emerging IP-based services by imposing data caps to preserve their existing oligopoly in cable.  That is not competition; that is foreclosing competition, and the remedy for it is to sue AT&T and its ilk for violating the Sherman and Clayton Acts and, as a remedy, order that integrated ISPs divest themselves of either their cable business or their Internet business, so that each would be and could compete as independent businesses. 

Another remedy for this incestuous internal conflict would be to regulate all of the IP-based aspect of the business as a separate, regulated public utility that must carry all bits as a common carrier, pricing its services to support its capital costs and provide a regulated rate of return on capital.

Or the government could take a hybrid approach, ordering a divestiture of the competing businesses so that they would be independent competing businesses, but where economic analysis indicates that a natural monopoly or oligopoly exists in the IP-based business, so that effective competition won’t exists, regulate the IP-based businesses as public utilities.

But whichever effective remedy you choose, you can’t let an AT&T or a Comcast compete against itself and decide that, well, the competition from the IP side of our business is getting too vigorous and successful in taking market share, because it is giving consumers more for less, so we will just foreclose that competition by capping, or should I say kneecapping, it.  If divestiture can create competing IP-base business, then either the court or the government should do that; if divestiture alone won’t work to create robust competition, then, because of that type of market failure, the government traditionally has and should in the case of IP-based services regulate them as public utilities.

But letting AT&T and its ilk compete against themselves and decide by themselves the terms of that competition forecloses competition, halts innovation in the emerging IP-based competitor to traditional cable service, results in monopoly or oligopoly rents for integrated ISPs, and results in the customers of those integrated ISPs suffering rapacious subscription rates for mediocre ISP services in an uncompetitive market for those services.

The government and the federal courts have the means, the jurisdiction, and the duty to do much better than that, and they had better do it, if the U.S. is to ever, compared to most of Western Europe, get better than second-rate ISP services.

Lee Dronick

@Nemo

Break up Ma Bell again

I pretty much have only two choices for broadband, AT&T DSL or Time-Warner Roadrunner. For TV service there are also satellite and dish networks, plus HD broadcasts for the local channels.

John Martellaro

Nemo: Yes, I agree. I pointed out that there’s a big conflict of interest in the article. I think the strong emphasis on net neutrality is the government’s way of trying to put the genie back in the bottle.

That said, I don’t see that we’re making progress against the giant ISPs with respect to divestiture. I don’t know of any court cases that could potentially put the genie back in the bottle and negate this conflict of interest for all major ISPs.  In fact, the government just made things worse by approving Comcast’s acquisition of NBCU. So we’re going in the wrong direction, and no one knows how to stop it.

I understand the problem, but if I rant about business practices of the ISPs, it might make all of us feel better, but it isn’t going to change anything.

Anyway, this article was not about all that. It was an a discussion of the reason for caps and an estimate of how the caps would likely affect Apple’s efforts in the cloud and the average Apple customer.  The data usage numbers presented in the comments also appear to support the thesis that the answer is: not much.

I’ll leave the heavy lifting to you, sir!

Telecommuter

As someone who works from home often and who’s company makes use of both ip audio and video conferencing (approx 3-5 hrs daily on video conferences), these caps are a serious concern.  Throw in the online backup tools such as carbonite, hitting that cap in my home is a rather common occurrence.

The unfortunate issue is that there is little competition in my area, and my only real options are comcast and att.

Lancashire-Witch

Experience varies across the world. 
I’ve never had an ISP that didn’t cap broadband data.  In my experience, if you’re capped, then sooner or later you’ll hit the limit one month.

It’s interesting that in most places across the world where Apple operates the user experience of audio is very similar. You can rip CDs, buy music from the iTunes store and sync it to your iOS device or iPod.

Not so with video. I’ve never had an Apple TV that enabled me to stream content from Netflix. Hulu and Boxee have no meaning in my location….  We’re getting TiVo soon! Everywhere there are restrictions; probably stemming from the regionalisation of DVDs.

It makes the the current Apple TV look very poor value in most locations outside the US. I can stream content from my computer or YouTube, or rent movies from the iTunes store. That’s it. The previous ATV could do more.

MobileMe is consistent. It has the same features and functions no matter where you live. Unless anyone knows different - (I could be wrong again). I hope its replacement is equally consistent. I would hope not to be stymied by either fewer functions or broadband data caps. And I look forward to the time when my enjoyment of video is equal to yours in the USA - notwithstanding ISP’s limitations - maybe then I’ll think about ditching Satellite TV.

wab95

Comcast results for me:

Apr 30 GB
Mar 23 GB
Feb 14 GB

And I consider myself a heavy user, testing equipment, watching movies, YouTube, etc.

I’m impressed. My usage seems to be an outlier compared to yours and others here.

We only watch television sporadically (okay, an hour in the early morning while I workout), but otherwise a movie or two in the evening, and we are at 76GB this past month (and I just returned home from abroad).

I must be using a lot more for work-related data usage than I thought.

wab95

I should add: I do have two teenagers on the premises.

John Martellaro

wab95: Now THAT will do it!

Nemo

John:  Net neutrality is a vitally important cause that I fully support.  In a recent edition of Particle Debris, you pointed us to an article that would apply the legal status of common carrier to ISPs to require that they not discriminate against types of content, except for practical reasons of complying with applicable law or as is necessary to manage their networks.  Though I haven’t considered the common carrier idea with great care, it seems like a good idea.  However, net neutrality is a separate issue that can have no effect on remedying the conflict of competitive interests that arise from integrated ISPs owning the conflicting businesses of IP-based services, content, and traditional cable, without at least government regulation and/or divestiture to protect and promote competition among those businesses.

Unfortunately, you are quite right in that there is no instant case or legislative effort that would remedy this patent and, for the reasons that I stated, supra, destructive and unfair restraint on competition.  What’s is needed is for us, the consumers, to light a fire under Congress and the DOJ and the FTC to use their power to remedy the integrated ISPs’ restraint on competition from IP-based services.  Given the lobbying power of the huge integrated ISPs, there is no one to resist the integrated ISPs? grab for a cozy oligopoly that will extract from consumers in the future every dollar that they can afford to pay for second-rate ISP services—no one except us.

But in addition to the normal apathy and lethargy that must be overcome to get the public to pursue its own best interests, the integrated ISPs have been quite clever in setting their caps at 250 GB per month, because today, most people won’t exceed or even come close to that monthly limit.  But in the future considering cloud services; streaming media, especially video; the rapid increase of portable devices that consume ever more bandwidth and data on home networks; telecommuting; and I could go on, it will be nothing for the average person to greatly exceed 250 GB per month.  And that future is not too far off.  However, it is just far enough off for a 250 GB cap to mollify public opposition to data caps today and, thus, permits the integrated ISPs to establish caps as, they hope, an irreversible custom.  I hope that we don’t fall for it.

And will this affect Apple’s cloud in the future, where the average use is much greater than 250 GB/month?  It most certainly will, unless Apple is ready to spend the many tens of billions of dollars to create its own fiber optic network from scratch.  But as long as Apple’s customers must use the integrated ISPs’ networks, Apple’s cloud will be as susceptible to losing business because of data caps as anyone’s cloud.  So Apple has as much, if not more, skin in this game as anyone and will be hurt in the future by data caps—as its customers are both restrained in the use of IP-based services and are forced to stay with the integrated ISPs’ proprietary services—as much as anyone.

wab95

Not so with video. I?ve never had an Apple TV that enabled me to stream content from Netflix. Hulu and Boxee have no meaning in my location?.? We?re getting TiVo soon! Everywhere there are restrictions; probably stemming from the regionalisation of DVDs.

It makes the the current Apple TV look very poor value in most locations outside the US

Great point, LW. If I had an HDTV in Asia, I am not sure I would get an ATV. I almost certainly would not drop cable. Perhaps the US/global ATV user experience will equilibrate in the near future.

NewMex

Hughesnet Satellite, the only true broadband available for most rural users, caps its service at 475MB per DAY. Any greater use results in their slowing the user down to dial up speed for a 24 hour period. iPhone, iPad and OSX updates are all greater than that. If a household has a several devices needing updating the only solution is the “free time” for downloading in the wee hours of the morning. Adding cloud services will just make using Apple products that much more unfriendly for a large number of customers.

NewMex

Hughesnet satellite, usually the only choice for many rural Internet users, caps service at 475MB per DAY. Greater use results in a 24 hour penalty throttled to dial up speeds. Apple iPhone, iPad and OSX updates are all greater than the daily allowance and household with multiple Apple devices either do not update or must wait until the “free” time in the wee hours of the morning.

Apple’s pushing customers toward over the air and cloud use is very unfriendly to customers who cannot access services because of poor ISP’s. It seems to show an elitist view of the world or unawareness of the reality of the customer base.

vpndev

I think that Australia shows where this is all headed. They have data caps but certain services are exempt from them. These are the ones provided by companies that have “made arrangements” with the ISPs, presumably paying them for this privilege.

The current fight between Comcast and Level 3 regarding Nexflix streaming fits right in to this sequence.

We can see where this is headed and none of its good :(

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