Broadband Internet:

FCC Should Track the Application of Fixed Internet Usage-Based Pricing and Help Improve Consumer Education

GAO-15-108: Published: Nov 24, 2014. Publicly Released: Dec 2, 2014.

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What GAO Found

Based on an analysis of consumer data plans of the top 13 fixed—in home—and 4 mobile Internet providers, GAO found that mobile providers employ usage-based pricing (UBP) more commonly than fixed. Under UBP, providers can charge varying prices, change connection speeds, or take other actions based on Internet data consumed. The 4 largest mobile providers in the country all use UBP to some extent; 7 of the 13 largest fixed providers now use UBP to some extent. Because prices can vary based on usage, it may be important that consumers be informed about data. GAO found that some tools offered by fixed providers to educate consumers regarding data can be confusing. For example, some provider estimates vary on data consumed for the same type of content. While mobile providers follow a voluntary code of conduct, developed with the Federal Communications Commission (FCC), to encourage useful, consistent consumer education, no similar code exists among fixed providers potentially resulting in confusion and a lack of consumer awareness regarding data needs.

Participants in all eight of GAO's focus groups reported being subject to mobile UBP and expressed some concerns about it, such as difficulty tracking data usage among many devices. Yet participants accepted mobile UBP and adapted by, for example, limiting use of high-data content and by connecting to Wi-Fi. By contrast, only a few participants in three focus groups reported being subject to fixed Internet UBP. Participants expressed concerns about possible increases in prices for access caused by fixed-Internet UBP and the potential effect of limits on their fixed Internet, where they have not considered data usage. Participants exhibited confusion over data consumption—for example thinking that low-data activities like online shopping consumed large amounts of data. Participants also expressed concern about difficulty tracking the wide range of devices accessing their fixed data allowance and that fixed UBP may negatively affect students, people working from home, and those with lower socio-economic status.

The potential effects of UBP are uncertain and could depend on competition among providers. Based on economics literature, UBP can address the usage of the heaviest data users and can benefit consumers by providing more options as opposed to a one-size-fits-all unlimited data plan. The literature also suggests that providers could implement UBP to benefit consumers—for example, by offering low-data, low-cost plans for those who do not want an unlimited data plan. While mobile providers GAO reviewed offer such plans, fixed providers—generally facing less competition—do so to a lesser extent. According to the literature, providers facing limited competition could use UBP to increase profits, potentially resulting in negative effects, including increased prices, reductions in content accessed, and increased threats to network security. Several researchers and stakeholders GAO interviewed said that UBP could reduce innovation for applications and content if consumers ration their data. While FCC is collecting data regarding fixed UBP, it is not using this data to track UBP use because it only recently started collecting the data specifically to analyze prices. As a result, although FCC is charged with promoting the public interest, it may not know if UBP is being used in a way that is contrary to the public interest and, if so, take appropriate actions.

Why GAO Did This Study

Access to broadband Internet is seen as being crucial to improving access to information, quality of life, and economic growth. In recent years, some Internet providers have moved away from unlimited data plans to UBP with uncertain effects on consumers.

GAO was asked to review the use of UBP by Internet providers. This report examines: (1) information available about the application of UBP by Internet service providers; (2) issues related to UBP selected consumers report are important to them; and (3) the potential effects of UBP on consumers.

GAO collected data on Internet plans from the country's 13 top fixed and 4 top mobile providers; contracted with a market research firm to assist with conducting eight focus groups held with consumers in four cities selected to reflect geographic diversity; reviewed relevant studies; and interviewed officials from the top Internet providers, FCC and industry stakeholders, including researchers, policy, and industry organizations.

What GAO Recommends

GAO recommends FCC: (1) work with fixed providers to develop a voluntary code of conduct to improve consumer communication and (2) make use of existing data to track fixed Internet UBP and its effects on consumers nationwide. FCC said it will monitor complaints and provider plans to determine if a more proactive approach is needed. GAO continues to believe that better communication is warranted. FCC agreed to use existing data to analyze UBP issues.

For more information, contact Mark Goldstein at (202) 512-2834 or goldsteinm@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Access to broadband Internet is seen as being crucial to improving access to information, quality of life, and economic growth. In recent years, some mobile and fixed-or in-home-Internet service providers (providers) have begun using a practice known as usage-based pricing (UBP). This involves the provider changing the price to customers, or otherwise adjusting their service, based on the volume of data they use. In 2014, GAO reported that because prices can vary based on usage, it may be important that consumers have a thorough understanding of their data needs and usage. Under unlimited data plans, consumers do not need to necessarily be aware of their data usage as the price they pay for service is unrelated to their data usage. But under UBP, for example, if consumers do not understand their data usage, they may choose plans that include allowances that are too large, and cost more, than needed. Both mobile and fixed providers that use UBP offer a variety of tools to their customers to help them understand, and estimate, their data usage; however, some of the tools that fixed providers offer to educate consumers regarding data can be confusing. GAO also reported that the mobile providers we reviewed-the four largest in the country-follow the voluntary Consumer Code for Wireless Service, developed with the Federal Communications Commission (FCC), to encourage useful, consistent consumer education. However, no similar code exists among fixed providers potentially resulting in confusion and a lack of consumer awareness and education regarding data needs, which could lead to consumers not purchasing their ideal data plan. Participants in all eight of GAO's focus groups reported being subject to mobile UBP and expressed some concerns about it, such as difficulty tracking data usage among many devices. Yet participants accepted mobile UBP and adapted by, for example, limiting use of high-data content and by connecting to Wi-Fi. By contrast, only a few participants in three focus groups reported being subject to fixed Internet UBP. Participants expressed concerns about possible increases in prices for access caused by fixed-Internet UBP and the potential effect of limits on their data usage. A common sentiment expressed by focus group participants was that they had no idea how much data they use at home, likely in large part because they have never been subject to data allowances and, therefore, have not needed to consider their data usage at home. Participants exhibited confusion over data consumption, for example thinking that low-data activities like online shopping consumed large amounts of data. Participants also expressed concern about difficulty tracking the wide range of devices accessing their fixed data allowance and that fixed UBP may negatively affect students, people working from home, and those with lower socio-economic status. Therefore, GAO recommended that FCC collaborate with fixed Internet providers to develop a voluntary code of conduct, similar to the Wireless Code of Conduct, to improve communication and understanding of data use and pricing by Internet consumers. On April 4, 2016, FCC released new broadband labels designed to provide consumers of mobile and fixed broadband Internet service with easy-to-understand information about price and performance. These labels-similar to nutrition labels-will provide consumers with more information on service speed and reliability and greater clarity regarding the costs of broadband service, including fees and other add-on charges that may appear on their bills. FCC's Internet Transparency rules require internet providers this information to consumers in an accurate, understandable and easy-to-find manner. As a result, consumers have better assurance that the information provided to them by internet providers is clear, consistent, and transparent, potentially leading to less consumer confusion over data usage and better decisions regarding data plans.

    Recommendation: To ensure that application of UBP for fixed Internet access does not conflict with the public interest, the FCC should collaborate with fixed Internet providers to develop a voluntary code of conduct, similar to the Wireless Code of Conduct, to improve communication and understanding of data use and pricing by Internet consumers.

    Agency Affected: Federal Communications Commission

  2. Status: Closed - Implemented

    Comments: Access to broadband Internet is seen as being crucial to improving access to information, quality of life, and economic growth. In recent years, some Internet providers have moved away from unlimited data plans to usage-based pricing (UBP) with uncertain effects on consumers. Such pricing strategies can take multiple forms, including offering specific levels of data usage to customers, also known as data allowances. In 2014, GAO reported that, based on an analysis of consumer data plans of the top 13 fixed-in home-and 4 mobile Internet providers, mobile providers employ UBP more commonly than fixed. Under UBP, providers can charge varying prices, change connection speeds, or take other actions based on Internet data consumed. Consumers who exceed their data allowance could face additional charges or reduced connection speeds. GAO also reported that the potential effects of UBP are uncertain and could depend on competition among providers. Based on economics literature, providers could implement UBP in a way that benefits consumers-for example, by offering low-data, low-cost plans for customers who do not want to pay for an unlimited data plan they do not need. However, providers-especially those facing limited competition-could use UBP as a means to increase their profits which could result in UBP having negative effects, including increased prices paid by consumers, reductions in content and applications accessed by consumers, and increased threats to network security. While the Federal Communications Commission (FCC) had only recently started collecting some relevant data on the use of UBP, including information on plan prices and data allowances, FCC was not using the data to gain an understanding of how UBP was being used and what its potential effects were on consumers. This lack of understanding might have limited FCC's ability to act to protect the public interest if necessary. Therefore, GAO recommended that FCC make use of existing data collection sources to track in-home Internet UBP implementation and its effects on consumers nationwide so that it could take actions, if necessary, to protect consumer interests. In 2018, GAO confirmed that FCC was using multiples sources of existing data to monitor the use of UBP by Internet providers. Specifically, FCC used survey data of in-home providers to analyze UBP and concluded that the rate of usage of data allowances has remained steady. FCC also analyzed existing consumer complaint data and concluded that complaints related to UBP have generally decreased over time. As a result, FCC is in a better position to both understand how UBP is being used and what its effects on consumers nationwide and protect the public interest.

    Recommendation: To ensure that application of UBP for fixed Internet access does not conflict with the public interest, the FCC should make use of existing data collection sources to track fixed-Internet UBP implementation and its effects on consumers nationwide so that FCC can take actions, if necessary, to protect consumer interests.

    Agency Affected: Federal Communications Commission

 

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