Deloitte predicts that in 2012 a further one hundred million Internet users will likely need to start watching the meter on their wired broadband connection. Although most users of wireless data around the world have become accustomed to monthly bandwidth caps, the majority of broadband connections – over phone, cable or fibre – have been unlimited until now. But a recent acceleration in data usage is causing Internet Service Providers (ISPs) to rethink their all-you-caneat pricing approach. At least an additional 20 ISPs, in five countries, serving more than 100 million users (or about 20 percent of the more than 500 million broadband subscribers globally²²⁸) will likely have explicit monthly bandwidth caps by the end of the year.

OECD data from late 2010 demonstrates how rare bandwidth caps have been for landline Internet access. Across 34 countries surveyed, there were just four countries all of whose ISPs had caps. In another five countries, 50 percent or more of the ISPs surveyed had caps. In the remaining 25 countries no ISP or only a minority of ISPs had a cap – and these represented many of the largest countries in Europe, Asia and the Americas²²⁹.

What would cause the end of all-you-can-eat data plans for wireline? The same phenomenon as in wireless: if you offer unmetered data, users, particularly a small proportion of them, will take full advantage of that offer. Until 2010, Internet access was primarily for services that benefited from broadband, but were not reliant on high speed, especially Web browsing and email. More recently, growth in streaming video, social networks, torrents, cloud services and gaming have thrown a tidal wave of demand at ISPs’ networks. As various wireless carriers have moved away from unlimited data plans, many consumers have pushed as much of their data traffic from cell phones and tablets onto their home Wi-Fi networks. This has helped ease cellular wireless congestion, but at the cost of the wireline congestion.

According to one study, the demand for data per subscriber is growing at over 30 percent year-on-year, to almost 15GB per month. Email is only 0.23 percent of that traffic. Video is over 100 times larger, at 26 percent, and expected to keep growing faster than overall data demand²³⁰. Further, that demand is neither evenly spread over the day nor across all users. Average data demand in ISP networks between 7 am and 11 pm is four times higher than between 2 am and 5 am, and 25 per cent of all downloaded data is consumed by less than one per cent of subscribers²³¹.

Uneven data demand by time and user puts stress on ISPs’ networks. Pressures to maintain profitability and constrain capital expenditures while retaining market share mean that relentlessly adding network capacity is likely to become increasingly challenging, so many ISPs are instituting bandwidth caps. There is tremendous variability in the caps being proposed: globally they can be as low as 1 GB per month or (from one ISP in Japan) as high as 900GB²³². While there are no reliable surveys of average data cap size around the world, it appears that roughly 100-250GB per month is increasingly frequent²³³. At the 250GB level, it appears that less than one percent of all users will be affected by the cap²³⁴.

Many methods are used to enforce the bandwidth caps. Some ISPs bill overage charges automatically, others send a warning for a first time over the cap, and then bill for subsequent overages on a per GB basis. Also used (at varying levels of transparency) is speed based enforcement: as users go over the bandwidth cap their data rate is throttled back, sometimes to as low as 64 Kbit/s²³⁵.

But whether it is a billing-based cap, or a speed-based cap, the net intent is to moderate demand.

Bottom line

A few years ago, it was assumed that any ISP that had previously offered unlimited data would find it impossible to “put the genie back in the bottle” and impose a cap. More recent experience has shown that if consumers are involved in a conversation about the benefits of caps (less network congestion, higher speeds at peak times) and the facts that caps are likely to affect only a very small minority of subscribers, the consumer reaction can prove entirely manageable.

Most users whose behavior causes them to hit the ceiling have been consuming data at that rate because it was unmetered. Once the meter is on, their usage patterns generally change. This helps reduce network congestion, but means that data caps are not likely to be material revenue generators for ISPs.

Further, ISPs can offer ways of softening the impact of a cap, which may not necessarily mean that consumers have to curtail their data use. For example, consumers can use various short-range data transfer technologies, rather than using the Internet to send videos, photos and other files between devices. (See 2012 Prediction “Web Bypass: delivering connectivity without the Internet”). Over time, as ISPs install more sophisticated technologies, including Deep Packet Inspection (DPI), there is also the potential for more flexible data caps. For example, caps may be more restrictive during peak-usage periods; but more generous otherwise. Or caps could vary by application, with steeper caps for latency-sensitive traffic like video or gaming; lower-priority, “best efforts” traffic for e-mail could be unlimited.

Finally, the trend towards more capped wireline data plans is likely to be reversed over the long term. As caps are used to manage network congestion, the rollout of much higher capacity wireline technology like the various fibre optic technology solutions may mean that either caps are removed, or are set so high as to be practically unlimited for virtually all users.

Deloitte Canada, as referenced in videos, podcasts, or online materials related to TMT Predictions 2012, refers to Deloitte & Touche LLP, the Canadian member firm of Deloitte Touche Tohmatsu Limited.

²²⁸World Broadband Statistics: Short report, Q4 2010, Point Topic, March 2011: http://broadband.cti.gr/el/download/broadbandshortreport2010.pdf

²²⁹OECD Broadband Portal, Chart 5j, December 2011: http://www.oecd.org/document/54/0,3746,en_2649_34225_38690102_1_1_1_1,00.html

²³⁰Cisco Visual Networking Index: Usage Study, Cisco Systems Website, 25 October 2010: http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/Cisco_VNI_Usage_WP.html

²³¹Global Internet Phenomena Report, Sandvine, Spring 2011: http://www.wired.com/images_blogs/epicenter/2011/05/ SandvineGlobalInternetSpringReport2011.pdf

²³²How Bad Do We Really Have it? Bandwidth Caps Around the World , Maximum PC, 16 June 2011: http://www.maximumpc.com/features/how_bad_do_we_really_have_it_bandwidth_caps_around_world

²³³Do Data Caps Make Good Business Sense for ISPs?, DSLReports.com, 4 November 2011: http://www.dslreports.com/shownews/Do-Data-Caps-Make-Good-Business-Sense-for-ISPs-116896

²³⁴Frequently Asked Questions about Excessive Use, Comcast Customer Central Webpage: http://customer.comcast.com/Pages/FAQViewer. aspx?Guid=ce29dfac-73d9-4cb4-b433-70abe3b295e6#excessive1

²³⁵BigPond Broadband Internet Plans: http://go.bigpond.com/broadband/?cid=ZBP_access_4_highspeedbb_280710