InternetNZ paper asks why NZ has data caps

InternetNZ has published a discussion paper that looks at New Zealand’s low data caps. Most countries have no limit on data that can be downloaded each months. In those that do, 1 terabyte (1TB or 1000GB) is the new mark for power users.

The discussion paper is called Barriers to Unmetered Domestic Internet Traffic and contains the views of 28 Internet industry players, including small and medium ISPS, telcos and content providers, about why New Zealand traffic is metered even when it is domestic, and how the advent of Ultra Fast Broadband  (UFB) would change this. 

InternetNZ commissioned independent consultant Colin Jackson to conduct these interviews in May and June, and the scope was aimed at consumer landline Internet. (The paper is available online here.)

Data caps stingiest in world
Background comments from respondents found that New Zealand caps were among the lowest in the world, Mr Jackson said. 

He said caps in Australia had recently expanded significantly due to competition between ISPs, with terabyte caps now common, Mr Jackson said.

Possible reasons for New Zealand's low caps were the reliance upon a single submarine cable for almost all international traffic and the position of Telecom as the owner of much of the access network used by most ISPs, said Mr Jackson.

“The price paid by ISPs for international transit has been dropping significantly; therefore if data caps do not greatly increase as they have in Australia recently it is likely to be incumbency around the copper loop which is keeping them low.”

While international access was becoming more affordable, Mr Jackson said access to parts of the local loop had become more constrained.  He said Telecom had recently taken action that enforced a constraint of 45kbps per user for some access products, with other speeds available at additional cost.

“Until recently, some ISPs at least had been able to evade this restriction.  The result is increased contention and reduced speeds for the customers of some ISPs.”

ISPs gave two specific reasons as to why low data caps persist, the report said.  This was to prevent a "tragedy of the commons", or a few heavy users dominating the use of fixed, low, level of bandwidth resources, to the detriment of others, and to segment the market, "by offering a better product to consumers who are willing to pay more, which maximises ISP income while providing for entry-level plans that are attractive to consumers who might otherwise not have broadband."

Mr Jackson said that these reasons existed in other markets but until now competitive pressure in NZ had been unable to significantly decrease, or get rid of, data caps, and this was probably due to the lack of international cable options, and Telecom's ownership of much of the access network.

The largest single factor against unmetering domestic traffic was that consumers would find it hard to predict which sites would result in international traffic and would “likely be frustrated and angry with their provider if traffic were metered differentially by its location,” Mr Jackson said in the paper.

Other reasons included the cost of providing a domestic network, the technical difficult for ISPs of determining whether traffic was domestic or not, and the lack of customer demand, he said.

“While customers undoubtedly want more for less, few people believe that customers specifically want free New Zealand content rather than a general increase in what they can get for their money.”

Zero-rating domestic traffic (ie not counting data from certain sites towards a cap) was practiced by some ISPs, notably Orcon’s O Zone, was an option for unmetered traffic and worked for consumers but not for content providers, who had to negotiate with many ISPs, Mr Jackson found.

“In conclusion respondents do not believe that differential charging for traffic whether it is on- or offshore is workable or desirable.”

Mr Jackson said the striking feature about the comments regarding changes under UFB was that ISPs did not appear to have thought about its impact and had not considred that data caps may be forced to rise.

“This is not universal, but it may lead to a shake-out in the ISP industry where those who have strategies to deal with UFB, and the investment capital to implement them, have an advantage over those who do not.”

Many respondents listed access to NZ content as a driver for the success of UFB, Mr Jackson said. 

“No-one said that the advent UFB would make zero-rated domestic traffic any more likely. However, if the reason for our low data caps is due to Telecom incumbency in the copper loop, which is one possible explanation for them in the current environment, we might expect a substantial increase or complete removal of the caps as UFB uptake spreads.”

InternetNZ seeks comments
InternetNZ chief executive Vikram Kumar said in a release that  there had been a lot of discussion about the low levels of data caps in New Zealand and the future shift to UFB.

“On the other hand, many ISPs continue to support data caps as effective tools to manage customer demand, keep retail prices low, and contain their investments.”

He said InternetNZ had commissioned the report as a first step towards considering what goals and initiatives should be in this area. 

Mr Kumar said the recent increase in broadband data caps by Telecom and Vodafone underlined how much room there was for major ISPs to move on the issue of low data caps.

“At the end of the day, we hope that this discussion will lead to action.  Otherwise the true potential of the Internet for Kiwis will remain a mirage as we fall behind other countries.”

InternetNZ is seeking comments by August 26 on the paper as well as views on what goals can be set in the area of data caps.