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United States Government Accountability Office: 
GAO: 

Report to the Ranking Member, Subcommittee on Communications and 
Technology, Committee on Energy and Commerce, House of Representatives: 

November 2014: 

Broadband Internet: 

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

GAO-15-108: 

GAO Highlights: 

Highlights of GAO-15-108, a report to the Ranking Member, Subcommittee 
on Communications and Technology, Committee on Energy and Commerce, 
House of Representatives. 

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 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. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-15-108]. For more 
information, contact Mark Goldstein at (202) 512-2834 or 
goldsteinm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Mobile Providers Employ Usage-Based Pricing More Widely Than Fixed 
Providers and Agree to a Code of Conduct: 

Internet Consumers in Focus Groups Accepted Mobile Usage-Based 
Pricing, but Had Concerns over Fixed: 

The Potential Effects of Usage-Based Pricing on Consumers Are Unclear 
and Could Depend on Competition: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Federal Communications Commission: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Examples of Devices Connected to Mobile Internet Network: 

Figure 2: Examples of Devices Connected to In-Home Fixed Internet 
Network: 

Figure 3: Examples of Data Usage by Selected Common Internet 
Applications: 

Figure 4: Examples of Variances in Estimates of Application Data Usage 
among Fixed Providers: 

Figure 5: Estimated Monthly Data Usage (Gigabytes) of Top 15 percent 
of internet users, 2013, 2018, and 2020: 

Abbreviations List: 

ACSI: American Customer Satisfaction Index: 

FCC: Federal Communications Commission: 

GB: gigabytes: 

MB: megabytes: 

UBP: usage-based pricing: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

November 24, 2014: 

The Honorable Anna G. Eshoo: 
Ranking Member: 
Subcommittee on Communications and Technology: 
Committee on Energy and Commerce: 
House of Representatives: 

Dear Ms. Eshoo: 

Access to affordable broadband Internet is increasingly seen as being 
crucial to improving access to information, quality of life, and 
commerce and as a driver for economic growth and innovation. Broadband 
allows people to share large amounts of information at increasingly 
faster speeds and provide access to information otherwise unavailable. 
[Footnote 1] For example, access to broadband allows individuals to 
take advantage of educational opportunities online that are otherwise 
unavailable in their local area. According to the Federal 
Communications Commission (FCC), the number of mobile and fixed (or in-
home) broadband connections in the United States grew from 45.6 
million in June 2010 to 163.7 million in June 2013.[Footnote 2] The 
amount of data accessed over the Internet has also grown significantly 
in recent years and is expected to continue to grow significantly. For 
example, Cisco (a provider of network infrastructure) projects that 
consumer Internet traffic in North America will grow at an average 
annual rate of 21.5 percent between 2013 and 2018.[Footnote 3] 

In recent years, some mobile and fixed Internet service providers 
(providers) have begun using a practice known as usage-based pricing 
(UBP).[Footnote 4] This involves the provider changing the price to 
customers, or otherwise adjusting their service, based on the volume 
of data they use. Such pricing strategies can take multiple forms, 
including offering specific levels of data usage to customers, also 
known as data allowances. Consumers who exceed their data allowance 
could face additional charges or reduced connection speeds. Given the 
growing importance of Internet access as well as growing data usage, 
it is important to understand how the use of UBP, as opposed to 
unlimited data access, may affect Internet consumers. 

You asked us to review the use of usage-based pricing by mobile and 
fixed broadband-Internet providers. This report examines: (1) what 
information is available about the application of usage-based pricing 
by Internet service providers; (2) issues related to usage-based 
pricing that selected consumers report are important to them; and (3) 
the potential effects of usage-based pricing on consumers. 

To review what information is available on the application of UBP by 
Internet providers, we collected data on current Internet plans 
[Footnote 5] from the top 4 mobile and 13 fixed providers[Footnote 6] 
(to account for 98 percent of each market).[Footnote 7] We analyzed 
these data to determine use of UBP and UBP plan details. We collected 
plan information on providers' public websites and validated it with 
each provider. Plan details--including any data allowances--were valid 
as of October 2014, but could change at any time. Because we obtained 
data online and confirmed the accuracy of the data with the providers, 
we determined that these data were sufficiently reliable for the 
purposes of our report. To determine issues related to UBP that 
selected consumers report are important to them, we conducted eight 
focus groups with Internet consumers (two each in: Baltimore, 
Maryland; Des Moines, Iowa; Las Vegas, Nevada; and New York, New York) 
to gather information on consumers' experiences with and opinions of 
UBP. The cities were selected to ensure diversity in geographic 
location and population of metropolitan areas. We contracted with a 
market research firm to recruit and screen participants and assist in 
holding the focus groups. Participant characteristics included a mix 
of education levels, races, genders, and income levels. Each group had 
9 to 10 participants for a total of 77. Given the nature of the focus 
groups, findings from the groups represented the views of participants 
and are not generalizable to all Internet consumers; however, we 
believe that the focus groups provided valuable insight into issues 
related to UBP that are important to consumers. To review the 
potential effects of UBP on consumers, we conducted a search and 
review of relevant literature and studies and interviewed officials 
from the Internet providers mentioned earlier. We also interviewed FCC 
officials as well as industry stakeholders, including academics and 
researchers, public interest groups, industry associations, and others 
based on the literature search and recommendations of other 
stakeholders. (For more information on our scope and methodology, see 
appendix I.) 

We conducted this performance audit from November 2013 through 
November 2014, in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

Background: 

Consumers generally subscribe to broadband Internet in two ways: 

* Mobile: Traditionally, mobile providers sold access to the Internet 
as an add-on to mobile telephone service plans that may or may not 
include a multiyear contract. Mobile service is provided through cell 
tower coverage with data sharing through radio spectrum.[Footnote 8] 
Because of a number of factors, including the number of users sharing 
certain parts of the network and the amount of data transmitted, 
mobile networks can experience congestion, or a slowdown in connection 
speeds. Subscribers can connect a variety of devices directly to 
mobile networks (see figure 1).[Footnote 9] 

Figure 1: Examples of Devices Connected to Mobile Internet Network: 

[Refer to PDF for image: illustration] 

Cell tower: 
Laptop connected through mobile device; 
Mobile device; 
Smart phone; 
Tablet. 

Source: GAO. GAO-15-108. 

[End of figure] 

* Fixed: In-home fixed Internet plans are often sold as a monthly 
subscription by cable television or telephone companies. Service from 
cable television companies is generally provided through the same 
coaxial cables that deliver television programming. Service from 
telephone companies is generally provided through the telephone lines 
(digital subscriber line service) that provide telephone voice 
services or fiber-optic lines which convert electrical signals 
carrying data into light and send the light through glass fibers. 
These network technologies generally have higher data transfer rates 
than mobile networks. Consumers can connect a variety of devices to in-
home fixed networks through a wired connection or wireless Wi-
Fi[Footnote 10] connection (see figure 2). Consumers are increasingly 
using the Internet to supplement or replace their use of traditional 
services, such as traditional telephone and cable TV service. 

Figure 2: Examples of Devices Connected to In-Home Fixed Internet 
Network: 

[Refer to PDF for image: illustration] 

Computer; 
Internet modem and wireless router; 
Smart phone; 
Tablet; 
Video game console; 
Video streaming device. 

Source: GAO. GAO-15-108. 

[End of figure] 

Different types of Internet applications use varying amounts of data. 
Figure 3 below shows selected examples of how much data certain 
applications use, as reported by fixed Internet providers on their 
websites. Internet applications that use small amounts of data can 
include e-mail. Applications that can use large amounts of data 
include streaming video--more than a gigabyte per use of the 
application. 

Figure 3: Examples of Data Usage by Selected Common Internet 
Applications: 

[Refer to PDF for image: horizontal bar graph] 

Application[A]: E-mail without attachment; 
Amount of Data Used: 20 kilobytes. 

Application[A]: Photo upload; 
Amount of Data Used: 5 megabytes. 

Application[A]: Two hours streaming audio[B]; 
Amount of Data Used: 120 megabytes. 

Application[A]: Two hours standard-definition streaming video; 
Amount of Data Used: 1 gigabyte. 

Application[A]: Two hours high-definition streaming video; 
Amount of Data Used: 3 gigabytes. 

Source: GAO analysis of fixed internet provider websites. GAO-15-108. 

[A] Estimates can vary by each provider. 

[B] Two hours streaming audio is based on an estimate of 4 megabytes 
per song and 15 songs per hour. 

[End of figure] 

Mobile and fixed Internet data use is likely to grow significantly in 
the future. Cisco projects consumer fixed data usage to grow at an 
annual rate of 21.5 percent from 2013 to 2018.[Footnote 11] Cisco also 
projects that mobile data usage in North America will grow at an 
average of 50 percent annually from 2013 to 2018 while Ericsson--a 
provider of network infrastructure--projects North American mobile 
data growth of 38 percent per year between 2013 and 2019.[Footnote 12] 
This trend is due to multiple factors including increased adoption of 
smartphones and tablets, growth in streaming video, innovation in 
services and applications, growth in subscriber numbers, and the 
development of faster networks. Although Internet providers have 
expanded their networks' capacity, the potential for in-network 
congestion that could slow the transfer of data has increased due to a 
number of factors including the increase in streaming video and 
multiple broadband devices.[Footnote 13] 

Usage-based pricing (UBP) is the practice of pricing or otherwise 
adjusting service, such as connection speed, based on the volume of 
data transmitted. According to FCC's Open Internet Advisory Committee, 
UBP by Internet providers can be used through data allowances 
(sometimes referred to as "caps") in which a subscriber obtains a 
defined amount of data per month. [Footnote 14] Subscribers who exceed 
their allowance could face a number of actions including additional 
charges for additional data or a reduction in connection speeds--known 
as "throttling." 

Under the Communications Act of 1934, as amended by the 
Telecommunications Act of 1996, FCC has statutory authority to 
regulate telecommunications for the purpose of making available rapid 
and efficient communications at reasonable charges[Footnote 15], and 
fostering competition.[Footnote 16] Under the Telecommunications Act 
of 1996, FCC, in order to eliminate market barriers, was to promote 
policies favoring vigorous economic competition and the public 
interest in the provision of telecommunications services.[Footnote 17] 
One of FCC's goals is to foster competition and maximize consumer 
benefits of broadband access.[Footnote 18] It seeks to accomplish that 
goal by collecting data, monitoring broadband availability, and 
establishing rules for transparency in internet service, among other 
things. 

Mobile Providers Employ Usage-Based Pricing More Widely Than Fixed 
Providers and Agree to a Code of Conduct: 

UBP More Commonly Used by Mobile Than Fixed Providers: 

* Mobile: Based on our analysis of data plans, all four mobile 
providers we reviewed now offer some form of UBP Internet plans. Of 
these four providers: 

- Two offer data allowances ranging from a low of 250 or 300 megabytes 
(MB) to a high of 100 gigabytes (GB) a month whereby larger allowances 
cost more overall (though less on a per MB or GB basis) and customers 
can share one data allowance among multiple devices.[Footnote 19] They 
impose overage charges (which can range from $20 for 300 MB on small 
data plans to $10 or $15 for 1 GB of additional data on larger data 
plans) for customers who exceed their allowance. 

- One offers a variety of data plan options, all of which feature 
unlimited data. Customers can select unlimited high-speed data or high-
speed data allowances ranging from 1 GB to 21 GB. Once customers reach 
their high-speed data allowance, they may continue to access unlimited 
data, but at slower connection speeds of 128 kilobits per second or 
less, slower than speeds FCC recommends for browsing the web or 
downloading e-mail. 

- One offers unlimited data plans but also usage-based plans with 
allowances ranging from 1 GB to 120 GB per device. Customers who 
exceed their data allowance are subject to overage charges of 1.5 
cents per MB. 

- All four offer their data plans equally across their entire customer 
base in all markets they serve. 

* Fixed: Based on our analysis of data plans, seven of the 13 fixed 
Internet providers we reviewed are now offering, to some extent, 
Internet plans that include elements of UBP. Of these seven providers: 

- Three use data allowances (ranging from 150 GB to 4,000 GB) where 
higher allowances are generally tied to faster connection speeds and 
higher overall prices (though less on a per GB basis). They impose 
fees on customers who exceed their allowance (generally starting at 
$10 for an extra 50 GB). 

- Two have data allowances, but do not impose fees or normally take 
other action when customers exceed their data allowance.[Footnote 20] 

- One offers a low-data allowance option (5 GB or 30 GB per month 
[Footnote 21]) at a discounted rate ($8 or $5 off a month 
respectively) off the normal prices for some of its unlimited data 
plans. Customers who exceed their data allowance are assessed overage 
fees of $1 per GB over the limit, with a maximum charge of $25 per 
month. 

- One is testing multiple UBP approaches in 14 select markets of 
varying sizes around the country. This provider is testing plans 
including those with allowances and overage fees. Allowances are 
generally 300 GB regardless of the plan's connection speeds (in one 
market allowances can increase to 600 GB, depending on plan speed) and 
overages are generally $10 for 50 GB of additional data. In some of 
these markets, this provider offers a low-data plan at a discount (a 
$5 discount off the regular price for unlimited data for a 5 GB data 
allowance with overage charges of $1 per GB). 

* Aside from the provider that is testing UBP in selected markets, all 
providers that use UBP do so in all markets they serve across their 
entire customer base or plan do to so in the future.[Footnote 22] 

Mobile and Fixed Providers Moving Away from Unlimited Data to UBP 
Plans: 

Both mobile and fixed Internet providers have increasingly been moving 
from unlimited data plans to usage-based plans. 

* Mobile: Two mobile providers, which together have over 68 percent of 
the mobile market, first introduced UBP in 2010 and 2011 and no longer 
offer unlimited data plans.[Footnote 23] Another provider still offers 
unlimited data but, according to officials we interviewed, first 
introduced UBP plans in 2013 to provide greater choice to consumers 
and to compete with other mobile provider plans. Since first 
introducing UBP-based plans, all four providers have increased both 
the variety of data plans and the levels of data allowances in these 
plans. For example, one provider recently offered a promotion that 
doubled data allowances for selected data plans without increasing 
prices. 

* Fixed: Most fixed Internet providers that have UBP introduced their 
current data plans in the past 4 years. However, unlike mobile 
providers, not all fixed providers that use UBP have increased their 
data allowances on existing plans since 2012. Some higher speed, 
higher priced plans introduced since 2012, however, have come with 
higher data allowances than previously existing plans. 

The number of providers that utilize UBP and, therefore, the number of 
Internet customers that are affected by it, could grow in the future. 
While providers we interviewed that do not use UBP said they have no 
plans to introduce such plans in the future, they added that they will 
continue to track the market and would not rule out using UBP. 

Tools to Help Understand Internet Data Use Have Limitations: 

Given that, under UBP, the price consumers pay for Internet access can 
depend on how much data they use, it may be important for consumers to 
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. 
Alternatively, they may purchase too little data and potentially face 
overage charges.[Footnote 24] Furthermore, "hidden" data uses--such as 
automatic updates and applications that push content to devices that 
consumers are unaware of--could represent as much as 30 percent of 
data use, meaning consumers could use large amounts of data without 
their knowledge.[Footnote 25] 

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, fixed providers do so to a lesser extent. Tools that 
providers offer to customers include: 

* tools to estimate data usage based on the consumer's estimate of 
their usage, including monthly e-mails, web pages, and videos; 

* discussions with customer service representatives on the appropriate 
data plan, given their estimated or prior usage; 

* web-based tools and details on customer bills regarding actual 
current and historic usage; and: 

* alerts--such as through email or texts--when approaching or 
exceeding data allowances. 

However, some of these efforts may have limited value for fixed 
Internet consumers due to a number of potential weaknesses. First, 
different providers may provide varying estimates of data usage for 
similar applications, as shown in figure 4. While these differences 
may be due to different technologies providers use, varying estimates 
could be confusing to consumers. Second, provider estimates of data 
usage of certain applications, and the large variation in such 
estimates such as streaming video as seen below, could be a factor in 
consumers' decisions regarding what data plan to subscribe to. 
Estimates provided by providers can differ from one customer support 
document to another; we found one provider that estimated 4 GB of data 
usage for a 1-hour movie in one document available to consumers, but 
in another document estimated only 1.5 GB. As discussed later in this 
report, participants in our focus groups expressed confusion regarding 
their data usage, including the amount of data that certain types of 
applications use. Third, data usage meters--which are used by 
providers to measure how much data their customers use--may be 
inaccurate. An official with a company that conducts internal audits 
of fixed-Internet-provider data meters and their integration into 
databases used for billing systems told us that while some of their 
audits have shown that meters are accurate, others have shown the need 
for improvements that those providers are in the process of making. 

Figure 4: Examples of Variances in Estimates of Application Data Usage 
among Fixed Providers: 

[Refer to PDF for image: vertical bar graph] 

Online gaming: 
Megabytes per hour: 
High estimate: 50; 
Low estimate: 12. 

Video streaming (standard video): 
Megabytes per hour: 
High estimate: 500; 
Low estimate: 100. 

Video streaming (HD): 
Megabytes per hour: 
High estimate: 1,716; 
Low estimate: 1,250. 

Source: GAO analysis of wireline provider websites. GAO-15-108. 

[End of figure] 

Mobile Provider Communications to Consumers Guided by a Code of 
Conduct Absent among Fixed Providers: 

All four mobile providers we reviewed agreed to the voluntary Consumer 
Code for Wireless Service, which aims to help consumers make informed 
choices when selecting and managing their mobile services. This code, 
developed as a joint effort between FCC and CTIA--a group representing 
the mobile communications industry whose members cover the majority of 
mobile subscribers--gives providers guidelines for notifying consumers 
about data use through means such as text alerts, encouraging them to 
provide useful and consistent information to consumers.[Footnote 26] 
As mentioned earlier, one goal of FCC is to protect the public 
interest in the provision of telecommunications services. According to 
FCC officials, following the implementation of this code by providers, 
complaints to FCC by mobile customers regarding overage charges on 
bills dropped. 

Although fixed providers make certain consumer education efforts 
regarding data use--such as providing alerts--there has not been a 
formal effort facilitated by FCC like with the Consumer Code for 
Wireless Service. According to FCC officials, FCC has focused its 
effort so far on mobile Internet as more mobile consumers are affected 
by usage-based pricing at this time. According to FCC officials, the 
volume of consumer complaints filed with FCC regarding fixed-Internet 
UBP is relatively low when compared with the overall number of 
complaints concerning broadband service. However, the low number of 
complaints does not necessarily mean that consumers are satisfied with 
the information provided by their fixed providers. We have previously 
found that consumers may not know that they can file complaints with 
FCC.[Footnote 27] As a result of the lack of a fixed provider code of 
conduct, information provided to consumers is not always consistent or 
easy to understand. This could result in a lack of consumer education 
regarding data, a lack that, as mentioned earlier, could lead to 
consumers not purchasing their ideal data plan. 

Under the Open Internet Transparency Rule,[Footnote 28] providers must 
be open and transparent about the terms and conditions of their 
Internet plans. FCC issued an FCC Enforcement Advisory to Internet 
providers in July 2014[Footnote 29] summarizing the general 
requirements of this rule. However, the advisory did not provide 
details regarding specific information that providers must disclose 
and at what level of detail.[Footnote 30] 

Furthermore, fixed providers have received low levels of satisfaction 
in customer surveys. The American Customer Satisfaction Index (ACSI) 
notes that as the number of Internet users has grown and exceeded the 
number of households that have landline service, customer satisfaction 
with fixed providers has decreased.[Footnote 31] Concerns about 
Internet data aspects may also be reflected in consumers' rating 
Internet providers the lowest among 43 household consumer industries 
in the ACSI. In particular, consumers report low levels of 
satisfaction with "ease of understanding their bill" and "variety of 
plans."[Footnote 32] 

Internet Consumers in Focus Groups Accepted Mobile Usage-Based 
Pricing, but Had Concerns over Fixed: 

Focus Group Participants Said They Are Not Used to Thinking about 
Fixed Data Usage and Exhibited Confusion over 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. One 
participant, for example, said, "It's unlimited… so we don't really 
pay attention." In all eight groups, participants said that they 
frequently connect their mobile devices to their in-home Wi-Fi without 
considering the amount of data these devices use on their in-home 
network. In seven of the eight groups we heard from, participants who 
said that they would face challenges in tracking the data usage of the 
multiple people and the multiple devices in their household. For 
example, having to tell other family members, such as children, to 
reduce their data usage was cited as a challenge. 

In addition, focus group participants exhibited many instances of 
confusion and a lack of understanding of their fixed-Internet data 
usage. For example, some participants were concerned that fixed 
Internet UBP might require them to limit data-light activities such as 
online shopping in order to avoid exceeding their data allowance when 
in reality any normal level of those activities would not likely 
result in a user nearing even a low data allowance.[Footnote 33] 
Others classified themselves as heavy data users during our initial 
screening process, despite the fact that during group discussions they 
said that they primarily use low-data applications such as online 
shopping. Therefore, those participants could potentially benefit from 
a lower-priced low-data plan as opposed to an unlimited data plan. 

Consumer surveys and studies also indicate that Internet users are not 
clear about the details of their Internet plans and data use. FCC 
reported in 2010 that 80 percent of broadband users did not know their 
home connection speed.[Footnote 34] A June 2013 Canadian Consumer 
Union study on mobile consumer data use concluded that the majority of 
respondents did not know and were not able to easily calculate their 
data usage, and more than a third of respondents did not know how 
quickly their usage limits can be reached.[Footnote 35] 

Focus Group Participants Generally Expressed Few Concerns Related to 
Mobile UBP: 

Although participants in our focus groups were widely subject to UBP 
for their mobile Internet, when asked what factors were important when 
considering a mobile data plan, participants expressed a preference 
for unlimited mobile data access in seven of our eight focus groups. 
Across all eight focus groups, we found a mixture of participants who 
reported having mobile Internet service that included data allowances 
and those who identified their mobile data plan as having unlimited 
data. In three of the eight groups, we found participants who have 
held onto "grandfathered" unlimited plans by not upgrading their 
devices, potentially trading the loss of improved technology--both 
newer devices and faster networks that older devices may not be able 
to access[Footnote 36]--for unlimited data. 

Focus group participants expressed few broad concerns about mobile 
UBP; more focused concerns included avoiding overage fees and managing 
data plans shared by more than one person. For example, some 
participants discussed the difficulty of monitoring or controlling the 
data usage of family members--such as a child--with a device on a 
shared data account given the potential for data overages. 

Participants demonstrated that they have learned to adjust to mobile 
data allowances and throttling. They discussed the following 
strategies for limiting the amount of mobile data they use and 
otherwise adapting to mobile UBP, including: 

* limiting use of data-heavy applications such as video; 

* connecting devices to Wi-Fi at home and other places to avoid mobile 
data usage; and: 

* changing to data plans or providers that better meet their needs. 
(For example, we spoke with participants who reported having changed 
their data plans to increase their data allowance while others, after 
realizing that they subscribed to a data plan that had more data than 
needed, have changed their plans to reduce their data allowance as 
well as their price for service.) 

Participants also said that they were aware of the tools that their 
mobile provider offers them, including online tools to estimate data 
usage and text alerts when they near their data allowance. In all 
eight groups we found participants who track their data use through 
tools from their provider, such as online data meters and information 
on their bills, and in seven groups, found participants who 
experienced receiving alerts when their usage approached their data 
allowance. Participants noted that such tools were helpful in choosing 
a plan or avoiding overage charges. 

Focus Group Participants Were More Concerned about Fixed UBP: 

The more limited use of UBP by fixed providers was evident in our 
focus groups. In three of the eight groups, participants reported 
experience with fixed Internet UBP and in seven groups there were 
participants who said they were unaware that some fixed providers have 
implemented such plans. 

While we found that some participants in each group voiced positive 
reactions to the concept of fixed Internet UBP, there was more 
discussion regarding negative reactions and concerns. In expressing 
positive reactions toward the concept of fixed Internet UBP, 
participants noted the potential benefit of more pricing options. 
Other reactions included liking the idea of paying less money for less 
data or stating that it was fairer to pay only for data used. Others 
noted that they should pay less for their access than people who use a 
lot of Internet data. However, participants in all eight groups 
expressed strong negative reactions to the concept of fixed Internet 
UBP, and these discussions overshadowed discussions about the 
potential benefits of UBP. Common issues discussed at our groups 
included: 

* Concern of the potential effects of data allowances given the 
importance of the Internet in their lives. Participants cited the 
importance of the Internet for commerce, education, and employment and 
expressed concern that UBP could limit their access to the Internet. 

* Concern that providers would use UBP as a way of increasing the 
amount they charge everyone for Internet service, in part because in 
their view consumers--having become accustomed to unlimited data and 
reliant on Internet access--would have no choice but to pay more. Some 
were skeptical that UBP would be used to reduce prices for any 
customers. 

* Fixed internet UBP negatively affecting certain populations, such as 
students and telecommuters who may use a lot of data at home and those 
with lower-socio-economic status who may have difficulty affording 
data plans with sufficient data allowance. In addition, in all eight 
groups there were participants who said they watch streaming video as 
a substitute for television, a group of consumers who may be more 
likely than others to be affected by UBP. 

* Having to worry about monitoring and potentially limiting data usage 
at home if subject to UBP, given that participants were used to the 
freedom of unlimited home access. In six groups, at least one 
participant said that they would accept UBP if it was only used by 
providers to offer discounts on lower-data plans while unlimited data 
plans remained the standard. 

While, as discussed earlier, participants have found ways to adapt to 
mobile UBP, such adoption may not be so easy for fixed access. For 
example, fixed Internet consumers may be less willing to reduce their 
use of streaming video or other data-heavy applications at home. And 
while participants said they connect their mobile devices to Wi-Fi, 
there is no similar option for avoiding in-home data usage; while we 
heard some comments where participants said they might leave their 
house to use the Internet--for example to connect to free Wi-Fi at 
coffee shops--that may not be possible for all in-home data uses such 
as teleworking and education. 

The Potential Effects of Usage-Based Pricing on Consumers Are Unclear 
and Could Depend on Competition: 

Usage-Based Pricing Could Increase Costs on Heaviest Users, but May 
Not Be Warranted: 

One economic rationale for UBP is to address situations where users 
take into account their own costs and benefits from Internet access, 
but ignore other costs--such as congestion--that they impose on other 
users--referred to as "externalities." In the presence of such 
externalities, economists often propose that consumers should be 
charged prices that reflect both of these types of costs in order to 
ensure that the consumers use the resource efficiently. All four 
mobile providers told us they use UBP to address the usage of heaviest 
users, manage their networks, or address congestion. All but one fixed 
providers we reviewed that enforce UBP said that they use UBP to 
address the usage of the heaviest data users. Most fixed providers 
said that their networks do not face widespread congestion. Most fixed 
providers we interviewed that use UBP said that they have set their 
allowances so that they currently affect only at most the three to 
five percent of users that use the most data, not average users. In 
addition, two fixed providers we interviewed told us that they are 
continually upgrading and expanding their networks to meet demand and 
UBP can be used to ensure that heavier users contribute more to those 
costs than lighter users. 

However, some industry stakeholders we interviewed said that UBP may 
not be warranted to address the data usage of the heaviest users. Two 
public interest organizations claimed that because the marginal costs 
of data delivery are very low and falling, heavier users impose few 
additional costs to providers than lighter users do. According to FCC, 
however, prices set on marginal costs would generally not allow 
providers to recover their costs. In addition, according to one paper 
we reviewed, absent network congestion, one person's use of the 
Internet does not interfere with other users, meaning that there is 
not a need to limit activity.[Footnote 37] Officials with those 
organizations added that more targeted UBP approaches, such as peak 
pricing during congested times, could address predictable congestion 
when it exists and place less burden on consumers overall. However, 
according to FCC, there are problems with peak pricing as it may not 
be an efficient means, or even allow, for ISPs to recover their costs 
of providing Internet access. 

Finally, to the extent that fixed Internet UBP is used to address the 
usage of the heaviest users, the number of customers affected could 
grow over time. According to Sandvine--a provider of networking 
solutions--fixed Internet customers who appear to use the Internet to 
replace traditional subscription-television service already use an 
average of 212 GB a month[Footnote 38], close to many existing data 
allowances.[Footnote 39] Furthermore, according to FCC, the top 15 
percent of cable Internet subscribers use over 145 GB of data a month 
and fiber-optic Internet subscribers use over 120 GB per 
month.[Footnote 40] Based on Cisco's estimate of data growth, noted 
previously, of 21.5 percent per year for fixed Internet data, their 
data usage could reach more than double common current data allowances 
of 150 or 300 GB by 2020 (see figure 5). In addition, more users could 
be affected by UBP in the future to the extent that average users 
begin using more data-heavy applications and content providers 
continue to develop more data-intensive content and applications. 

Figure 5: Estimated Monthly Data Usage (Gigabytes) of Top 15 percent 
of internet users, 2013, 2018, and 2020: 

[Refer to PDF for image: vertical bar graph] 

Monthly data consumption (in gigabytes): 

Current common data allowances: (150 GB and 300 GB, respectively). 

Year: 2013; 
DSL: 86; 
Fiber: 122; 
Cable: 147. 

Year: 2018; 
DSL: 228; 
Fiber: 323; 
Cable: 389. 

Year: 2020; 
DSL: 892; 
Fiber: 1,261; 
Cable: 1,520. 

Sources: GAO analysis of FCC and Cisco data. GAO-15-108. 

Note: Cable is service from cable television companies which is 
generally provided through the same cables that deliver television 
programming. DSL is provided from telephone companies through the 
lines that provide telephone voice service. Fiber is provided on fiber-
optic lines. 

[End of figure] 

UBP Can Be Used to Provide More Options to Consumers, but Benefits 
Unclear When Competition is Limited: 

A second rationale for UBP is that it has the potential to increase 
consumer welfare. According to economics literature, UBP can be 
interpreted as a form of price discrimination, where sellers offer the 
same or similar goods at different prices and consumers choose among 
these versions. In a competitive market place, this practice may 
enhance consumer welfare because firms may compete to offer different 
versions of a product at competitively low prices. As a result, in a 
competitive marketplace, providers could use UBP to innovate on the 
types of plans they offer. For example, this scenario could allow low-
data users to buy plans with low data allowances at competitively 
lower prices, and heavier data users could buy plans with higher data 
allowances that best meet their needs. In contrast, in markets that 
are not very competitive, this kind of price discrimination may not be 
beneficial because limited competition gives the seller greater 
ability to make take-it-or-leave-it offers to consumers--who may face 
few choices to move to other providers--that may enhance providers' 
profits at the expense of consumer welfare. FCC officials said that 
they believe economics literature is inconclusive on these matters. 

There is generally more competition among mobile providers than among 
fixed providers. According to FCC, 54 percent of households are in 
census tracts that have more than two fixed providers with subscribers 
to services with a download speed of at least 6 Mb/second and upload 
speed of at least 1.5 Mb/s.[Footnote 41] By contrast, according to 
FCC, almost 98 percent of the U.S. population lives in census blocks 
with more than two mobile providers.[Footnote 42] Participants in six 
of our eight focus groups said they would look to switch providers if 
faced with fixed Internet UBP, but participants in all eight groups 
said that they faced limited choice in providers, which may limit 
their ability to select a data plan that best meets their needs. 

All mobile providers and two fixed providers we interviewed told us 
that they in part use UBP to offer more Internet plan options to meet 
individual needs; as a result, providers don't require all consumers 
to pay for unlimited data or high-speed data at a fixed price. 
Consequently, consumers who want to use low amounts of data can pay 
less than those who use more. For example, one mobile provider offers 
a 1 GB data plan for $40 a month compared to $80 for a 6 GB data plan. 
[Footnote 43] The availability of low-price, low-data plans may also 
encourage some individuals or households without Internet access to 
subscribe.[Footnote 44] However, according to a recent survey by Pew 
Research, only 9 percent of non-Internet users cited price as a reason 
for not accessing the Internet,[Footnote 45] suggesting that the 
availability of low priced plans may not substantially increase the 
number of new Internet subscribers. 

The extent to which mobile and fixed Internet customers have benefited 
from low-cost low-data plans is unclear at this time. 

* While mobile customers can select a wide range of data plans, 
customers who may potentially benefit from the reduced prices of low-
data plans may not be taking advantage of them. For example, one 
mobile provider we interviewed said that a "small percentage" of its 
customers are on 500 MB or smaller data plans.[Footnote 46] Yet, 
according to Cisco, about 25 percent of mobile customers use less than 
200 MB of data a month. 

* Fixed internet customers--who as mentioned generally face less 
choice in providers than mobile customers do--generally have fewer 
plan options than mobile customers, especially for low-cost, low-data 
plans. However, it appears that a small percentage of customers 
subscribe to such options even though, according to FCC data, 30 
percent of cable Internet customers use about 25 GB of data a month or 
less, meaning they could potentially take advantage of such plans. 
Another reason why subscribers may not choose the low-data plan at a 
discount is because the cost per GB of data is high and the small 
discount (of at most 20 percent of the unlimited data plan price) may 
not be worth the significant restriction in data usage from unlimited 
data. Further, only two fixed providers we interviewed offer data 
plans near or below the levels of median household data usage reported 
by FCC[Footnote 47]. 

FCC's Open Internet Advisory Committee studied the issue of usage-
based pricing and, believing that more fixed Internet customers could 
be affected by UBP in the future, recommended in August 2013 that FCC 
monitor fixed provider application of UBP.[Footnote 48] FCC collects 
some relevant data--such as on plan prices and data allowances used by 
selected fixed providers.[Footnote 49] While FCC officials said that 
they will consider how they can use these data in the future, at this 
time FCC only uses these data to set a benchmark to ensure that 
providers receiving universal service funding are providing broadband 
services in rural areas at prices comparable to those in urban areas. 
FCC does not track providers' use of UBP as FCC only recently started 
collecting data for the specific purpose mentioned above. For example, 
FCC is not analyzing the data to determine how many providers utilize 
UBP, levels of data allowances, and how those allowances compare to 
average data consumption. As mentioned earlier, the Telecommunications 
Act of 1996 calls on FCC to promote the public interest in the 
provision of telecommunications services. Because FCC is not 
conducting any broader analysis with these data, it may not have a 
full understanding of how UBP is being used and its effects on 
consumers. This lack of understanding may limit FCC's ability to act 
to protect the public interest if necessary. 

Some Industry Stakeholders Believe UBP Could Have Adverse Effects on 
Innovation and Network Security: 

Two industry stakeholders we interviewed also suggested that fixed 
providers--many of whom also provide television video content--could 
use UBP as a means to raise the price for watching online streaming 
video services--a competitor to their video services--as households 
continue to substitute television with streaming video. Because UBP 
can make it more expensive to watch data-heavy content such as 
streaming video, it may discourage people from accessing such content 
and, therefore, discouraging them from eliminating their television 
service. This might adversely affect firms that provide online video 
streaming services and reduce competition and innovation in the market 
for providing streaming video content, thereby negatively affecting 
consumers. 

In addition, two industry stakeholders we interviewed believe UBP 
could in general inhibit innovation that results from experimentation 
and unlimited access to the Internet. Greater innovation could result 
in the development of more content and applications that consumers 
demand and value. Some Internet users, such as heavy data users, may 
pay more for access under UBP. As a result, some of them may limit 
their Internet use--as mentioned earlier, some focus group 
participants said that they have reduced their mobile data usage as a 
result of UBP--particularly of data-heavy content and applications 
such as online learning and video. This could lead to reduced use of 
some beneficial Internet applications and innovation in such 
applications. For example, one public interest group said that the 
limits that UBP may impose on the market for innovative applications 
and content may limit the potential of new startups. 

One of the mobile providers we reviewed has entered into agreements 
with selected content providers so that the content provider's data 
does not count toward customers' data allowances.[Footnote 50] When 
presented with such a hypothetical situation, while some focus group 
participants expressed confusion over how such an arrangement might 
work, we found participants in all eight groups who agreed that they 
would be more likely to access content that does not count toward 
their data limits than content that does. Two industry stakeholders we 
interviewed suggested that such agreements would favor large 
established companies and reduce innovation or competition. 

Furthermore, UBP could have negative effects on network security. 
According to a 2012 study, UBP may result in consumers--in an attempt 
to reduce data usage--foregoing automatic security updates to their 
computers, which could have negative implications for network 
security.[Footnote 51] 

Conclusions: 

Consumers who are subject to UBP need to understand their data usage 
and needs in order to make an informed decision about what is best for 
them. The confusion over data usage exhibited by consumers in our 
focus groups, as well as inconsistencies in estimates on the data 
certain applications use, and the fact that "hidden" data usage can 
result in consumers' using more data than expected, can make it 
difficult for consumers to make informed decisions regarding their 
data plan and could result in consumers exceeding their data allowance 
and facing overage charges. Mobile customers benefit from a voluntary 
code of conduct that FCC helped facilitate to guide provider actions 
and consumer education. Such a code helps enable more consistent and 
transparent information provided to consumers. Because no code of 
conduct exists for fixed providers, there is less assurance that 
information provided to consumers is clear, consistent, and 
transparent, potentially leading to consumer confusion over data usage 
and poor decisions regarding data plans. 

Although few fixed Internet customers are affected by UBP at this 
time, the number could grow to the extent that fixed Internet 
providers increase their use of UBP and data use grows. 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. Because fixed Internet customers generally have 
limited choice of providers, they may be unable to switch providers to 
select a data plan that best meets their needs. While focus group 
participants have adapted to mobile data plans, they and other 
consumers may have a harder time adapting to fixed-Internet UBP given 
the limited choice among providers and challenges in reducing data 
usage--as consumers have done for mobile Internet--at home if needed. 
While FCC has been collecting relevant data on the use of UBP, 
including information on data allowances, FCC is not using the data to 
gain an understanding of how UBP is being used and what its potential 
effects are on consumers. Without this market knowledge, FCC would not 
necessarily be able to take appropriate action if UBP is being used in 
a way that is harmful to consumers. 

Recommendations: 

To ensure that application of UBP for fixed Internet access does not 
conflict with the public interest, we recommend that the FCC: 

1. 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. 

2. 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 Comments and Our Evaluation: 

We provided a draft of this report to FCC for review and comment. FCC 
provided a written response (see appendix II) as well as technical 
comments that we incorporated as appropriate. In response to our 
recommendation that FCC collaborate with fixed Internet providers to 
develop a voluntary code of conduct for consumer communication, FCC 
said that because the number of consumer complaints regarding UBP by 
fixed providers appears to be small and that UBP plans are less common 
for fixed Internet customers than mobile customers, it is unclear that 
any action is needed at this time. FCC added it will continue to 
monitor its complaints and provider offerings for trends that might 
indicate that more action is needed. We recognize that UBP plans are 
less common for fixed Internet customers than mobile, but believe 
additional action is warranted as we recommended. Given the trend 
toward greater use of UBP by fixed providers, increased data usage, 
confusion by consumers regarding data usage, our previous findings 
that consumers may not know to file complaints with FCC, and the 
potential that limited competition among fixed providers could result 
in their using UBP in ways that harm consumers, we continue to believe 
that it is important for FCC to be more proactive. For mobile 
Internet, FCC worked with providers to improve consumer education 
regarding data through the Consumer Code for Wireless Service only 
after many consumers faced significant problems with their data usage. 
We believe FCC has an opportunity to protect consumers before 
significant problems occur by collaborating with fixed Internet 
providers now to develop a code of conduct. 

Secondly, in response to our recommendation that FCC use existing data 
sources to track UBP implementation, FCC agreed to do so but noted 
that its two data gathering efforts that collect some data relevant to 
UBP-
-the Urban Rates survey and Form 481--were both designed for other 
purposes. FCC added that as a result, while these efforts would allow 
it to conduct some analyses regarding UBP--such as plans offered by 
providers and the terms of those plans--it would not be able to 
conduct certain analyses, such as the number of subscribers subject to 
UBP. We agree that FCC should analyze the existing data as best as it 
can, taking into account such limitations. However, we also believe 
that in conducting such analyses, FCC, to the extent possible should 
consider using other existing data as well--such as data on median 
data consumption--to make the analyses as meaningful as possible. 

We are sending copies of this report to interested congressional 
committees and the Chairman of the FCC. In addition, the report will 
be available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff that made significant 
contributions to this report are listed in appendix III. 

Sincerely yours, 

Signed by: 

Mark Goldstein: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To review what information is available about the application of usage-
based pricing by Internet service providers, we reviewed information 
on the current consumer Internet data plans[Footnote 52] of the 
largest 13 fixed and 4 mobile providers[Footnote 53] in order to cover 
98 percent of each market.[Footnote 54] To determine market shares 
among fixed providers, we used data from the first quarter of 2014 on 
subscribership levels reported by Leichtman Research Group, a private 
research firm specializing in the telecommunications industry. 
[Footnote 55] To determine mobile provider market shares, we used data 
on 2012 subscribership numbers by provider as reported by the Federal 
Communications Commission (FCC) in its 16TH Mobile Competition Report. 
We collected plan information on each provider's public website, 
validated it with each provider during an interview, and then 
confirmed the information with each provider again in October 2014. 
Information we collected included plan terms and conditions relevant 
to UBP as applicable, such as data allowances, connection speeds, and 
overage charges or other consequences for customers exceeding their 
allowances. Information on Internet plans, including data allowances, 
was valid as of October 2014, but could change at any time. We also 
interviewed these providers about the extent to which they use UBP and 
the specifics of their data plans. Finally, we interviewed the FCC 
regarding these issues, as well as FCC's role regarding UBP. 

To review issues related to usage-based pricing that selected 
consumers report are important to them, we contracted with a private 
market research firm to assist with screening, recruiting, and holding 
focus groups with Internet consumers. We held two focus groups in each 
of the following cities: Baltimore, MD; Des Moines, IA; Las Vegas, NV; 
and New York, NY. The cities were selected to ensure diversity in 
geographic location and population of metropolitan areas. In each 
city, we held one group with self-identified "light" users and one 
group with self-identified "moderate" and "heavy" users, based on 
definitions from FCC.[Footnote 56] Potential participants were 
screened to ensure that they had both mobile Internet data plans as 
well as in-home broadband service. We also recruited participants in 
order to ensure a mix of age, race, sex, education level, and income 
level. Each of the eight groups contained 9 to 10 participants for a 
total of 77. 

Focus group discussions were structured and guided by a moderator who 
used a standardized list of questions to encourage participants to 
share their thoughts and experiences with UBP. Specifically, question 
topics included participants' use of fixed and mobile Internet, their 
experiences with fixed and mobile UBP, and their opinions of and 
experiences with fixed and mobile UBP. To ensure participants 
understood the terminology used in the group discussions, we began 
each session by presenting copies of figures 1 and 2 in this report 
and clarifying the differences between fixed and mobile Internet to 
the participants. During the sessions, we assured participants of the 
anonymity of their responses, promising that their names would not be 
used. We also conducted one pretest focus group at GAO and revised the 
moderator's guide prior to beginning our focus groups sessions. 

Each of the eight focus groups was transcribed, which served as the 
record for each group. Those transcripts were then evaluated using 
content analysis to develop our findings. Our analysis focused on 
categorizing the common themes and statements made across the focus 
groups and quantifying those categories to gain an understanding of 
the predominant viewpoints expressed by the participants. The analysis 
was conducted in two steps. In the first step, two analysts 
independently developed a codebook and then worked together to resolve 
any discrepancies. In the second step, an analyst coded each 
transcript and then a second analyst verified those codes. Any coding 
discrepancies were resolved by both analysts agreeing on what the 
codes should be. 

Methodologically, focus groups are not designed to (1) demonstrate the 
extent of a problem or to generalize results to a larger population, 
(2) develop a consensus to arrive at an agreed-upon plan or make 
decisions about what actions to take, or (3) provide statistically 
representative samples or reliable quantitative estimates. Instead, 
focus groups are intended to generate in-depth information about the 
reasons for the focus group participants' attitudes on specific topics 
and to offer insights into their concerns about and support for an 
issue. The projectability of the information produced by our focus 
groups is limited for several reasons. First, the information includes 
only the discussions from the Internet consumers in the eight groups. 
Second, while the composition of the groups was designed to ensure a 
range of age and education levels, the groups were not randomly 
sampled. Third, participants were asked questions about their 
experiences or opinions, and other Internet consumers not in the focus 
groups may have had other experiences or opinions. 

In order to review the potential effects of UBP on consumers, we 
completed a literature search to obtain and review documentation, 
research papers and studies, and articles related to the use of UBP 
and its potential effects. Our search looked for relevant work, 
including economic literature, articles in scholarly journals, and 
industry publications, published in the past 5 years and used search 
terms including "data cap," "throttling," and "usage-based pricing." 
We reviewed these papers and their methodologies to determine their 
reliability. We interviewed the 4 mobile and 13 fixed providers 
mentioned above regarding the potential effects of UBP on consumers. 
We also interviewed FCC as well as industry stakeholders including 
academics and researchers, public interest organizations, industry 
associations, and others. We determined industry stakeholders to 
interview based on our review of published literature and studies, as 
well as based on recommendations from providers and other 
organizations we interviewed. 

We conducted this performance audit from November 2013 to November 
2014 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Federal Communications Commission: 

Federal Communications Commission: 
Washington, D.C. 20554: 

November 7, 2014: 

Mr. Mark Goldstein: 
Director, Physical Infrastructure Issues: 
Government Accountability Office: 
441 G St, NW: 
Washington, DC 20548: 

Dear Mr. Goldstein: 

Thank you for the opportunity to review and comment on the U.S. General
Accountability Office's (GAO) draft report entitled "FCC Should Track 
the Application of Fixed Internet Usage-Based Pricing and Help Improve 
Customer Education" (Draft Report). 

In the report, GAO recommends that the Commission "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."[Footnote 
1] To date, the number of consumer complaints concerning usage-based 
pricing in connection with fixed broadband services appears to be 
small relative to the number of complaints about fixed broadband 
services generally. Additionally, plans with usage-based pricing terms 
appear to be less common for fixed services than for mobile services, 
for which they are commonplace. Thus, while it is unclear whether any 
actions are warranted at this time, we will continue to monitor both 
our complaint data and providers' offerings carefully for changes or 
trends that would suggest a more pro-active approach is needed. 

In addition, the Commission has recognized the potential significance 
of usage-based pricing to all consumers and has requested comment on a 
variety of issues relating to this topic in the ongoing Open Internet 
proceeding.[Footnote 2] In particular, the Commission has asked for 
comment "on what economic tools broadband providers utilize to manage 
traffic on their networks,"[Footnote 3] and has noted that "broadband 
providers may address traffic management through commercial terms and 
conditions on end users, such as pricing for different levels of 
throughput or through the use of 'data caps'.",[Footnote 4] The 
Commission also asked "to what extent and in what ways do
broadband providers use such tools to manage traffic, such as by 
excluding certain content from such an end user data cap?"[Footnote 5] 

The comment cycle in the Open Internet proceeding closed on September 
15, 2014, by which point we received an unprecedented 3.7 million 
comments and reply comments. Many of those comments addressed other 
issues--such as "paid prioritization" arrangements and the
appropriate source of legal authority for new Open Internet rules. 
Nevertheless, some organizations and individuals expressed serious 
concern about usage-based pricing and related concepts such as data 
caps and data allowances, both by fixed and mobile broadband 
providers. [Footnote 6] Certain other parties expressed the view that 
usage-based pricing is an appropriate tool to manage capacity. 
[Footnote 7] Commission staff are carefully reviewing and considering 
these and other issues raised in the Open Internet rulemaking. 

GAO also recommends that the Commission "make use of existing data 
collection sources to track fixed Internet [usage-based pricing] 
implementation and its effects on consumers nationwide so that it can 
take actions, if necessary, to protect consumer interests."[Footnote 
8] The Commission designed the Form 481 and its Urban Rates survey -
both of which collect some usage-based pricing data - for the purpose 
of supporting the Commission's Universal Service Fund's High-Cost 
program. Specifically, the Urban Rates Survey collects data used to 
establish a rate floor that eligible telecommunications carriers 
(ETCs) receiving high-cost loop support or frozen high-cost support 
must meet to receive their full support amounts and to help ensure that
universal service support recipients offering fixed voice and 
broadband services do so at reasonably comparable rates to those in 
urban areas. FCC Form 481 collects information annually regarding 
pricing and associated usage allowances from all recipients of high-cost
support to the extent they provide broadband service in high-cost 
areas. The data captured in these collections would allow some 
analysis of usage-based pricing over time, such as offers available as 
of a given date and the terms associated with exceeding a data 
allowance. Because they do not collect data about subscribers, their 
plans and their data consumption, these collections will not allow us 
to study all of the topics that are recommended, such as "how many
customers are likely affected, what their data allowances are and how 
those allowances compare to average consumption,"[Footnote 9] but we 
will nonetheless use the existing data to analyze the issue to the 
extent possible. 

We thank the GAO for its time and effort working on this important 
matter and appreciate the opportunity to review and comment on the 
draft GAO report. 

Sincerely, 

Signed by: 

Julie A. Veach: 
Chief: 
Wireline Competition Bureau: 

Appendix II Footnotes: 

[1] Draft Report at 26. 

[2] Protecting and Promoting the Open Internet, GN Docket No. 14-28, 
Notice of Proposed Rulemaking, 29 FCC Rcd 5561 (2014) (2014 Open 
Internet Notice of Proposed Rulemaking). 

[3] 1d. at 5577. 

[4] 1d. 

[5] 1d. 

[6] See, e.g., Comments of Public Knowledge et ai., GN Docket 14-28, 
at 48-60 (filed July 15, 2014) [hyperlink, 
http://apps.fcc.gov/ecfs/documentlview?id=7521480282]; Comment of Gail 
Day (filed July 17, 2014) [hyperlink, 
http://apps.fcc.gov/ecfs/commentlview?id=6018184486]. 

[7] See, e.g., Comments of Int'l Center for Law and Economics and 
TechFreedom, GN Docket 14-28, at 19 (filed July 17, 2014) [hyperlink, 
http://apps.fcc.gov/ecfs/documentlview?id=7521706121]. 

[8] Draft Report at 26. 

[9] Draft Report at 23. 

We thank the GAO for its time and effort working on this important 
matter and appreciate the opportunity to review and comment on the 
draft GAO report. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov. 

Staff Acknowledgments: 

In addition to the contact above, Keith Cunningham (Assistant 
Director); Eli Albagli; Namita Bhatia-Sabharwal; Melissa Bodeau; 
Matthew Cook; Joshua Ormond; Cheryl Peterson; Matthew Rosenberg; Hai 
Tran; and Elizabeth Wood made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Broadband Internet throughput, typically referred to as "speed," 
is described in download and upload capabilities and is measured by 
the number of bits of data transferred per second. Measures of data 
include megabits (MB) and gigabits (GB). Download speed refers to the 
rate at which data is transferred to the consumer. Upload speed refers 
to the rate at which data is transferred from the consumer to the 
Internet. FCC defined broadband as having download speeds of at least 
4 megabits per second (Mb/s) and upload speeds of at least 1 Mb/s. See 
Inquiry Concerning the Deployment of Advanced Telecommunications 
Capability to All Americans in a Reasonable and Timely Fashion, and 
Possible Steps to Accelerate Such Deployment Pursuant to Section 706 
of the Telecommunications Act of 1996, Amended by the Broadband Data 
Improvement Act, GN Docket No. 11-121, Eighth Broadband Progress 
Report, 27 FCC Rcd. 10342 (2012). 

[2] Includes connections of a download speed of at least 3 Mb/s and an 
upload speed of at least 768 kilobits per second. Federal 
Communications Commission, Internet Access Services: Status as of June 
30, 2013 (Washington, D.C.: June 2014). 

[3] Cisco Cisco Visual Networking Index: Forecast and Methodology, 
2013-2018, (June 10, 2014). 

[4] For the purposes of this report we refer separately to fixed and 
mobile Internet providers. 

[5] Our scope was limited to consumer Internet service. In addition, 
we did not include mobile pre-paid Internet plans or satellite 
Internet providers as they are a small part of the market. 

[6] Mobile providers included AT&T Wireless, Sprint, T-Mobile, and 
Verizon Wireless. Fixed providers included AT&T, BrightHouse Networks, 
Cablevision, CenturyLink, Charter, Comcast, Cox, Frontier 
Communications, Mediacom, Suddenlink, Time Warner Cable, Verizon, and 
Windstream. 

[7] For mobile market shares, we used data from FCC. See FCC, Annual 
Report and Analysis of Competitive Market Conditions With Respect to 
Mobile Wireless, Including Commercial Mobile Services: 16TH Report, 28 
FCC Rcd. 3700 (2013) (hereinafter 16TH Mobile Competition Report). For 
fixed market shares, we used data reported by Leichtman Research 
Group, a private research firm specializing in the telecommunications 
industry. See [hyperlink, 
http://www.leichtmanresearch.com/press/052014release.html]. Accessed 
September 19, 2014. 

[8] The radio frequency spectrum is the resource that makes possible 
wireless communications and supports a vast array of commercial and 
government services. 

[9] Many of these devices can also connect to fixed Internet via a Wi-
Fi connection. In this case, mobile Internet is used when these 
devices connect directly to the Internet through a cellular tower. 

[10] Wi-Fi (wireless fidelity) signals are radio waves that provide 
Internet access to devices equipped with compatible wireless hardware. 
Each Wi-Fi access point is identified by a unique hardware address. 
Nearby compatible devices are able to receive this information and use 
it to request Internet access. 

[11] Cisco, Cisco Visual Networking Index: Forecast and Methodology, 
2013-2018 (June 10, 2014). 

[12] Cisco Visual Networking Index; Ericsson, Ericsson Mobility 
Report; On the Pulse Of the Networked Society (June 2014). 

[13] Data transfer rates (speeds) and the potential for congestion, 
can vary depending on a number of factors including the number of 
users on shared networks and device capability. 

[14] Members of the Open Internet Advisory Committee include consumer 
advocates, engineers, content providers, service providers, and 
equipment manufacturers. The Committee aids FCC in tracking 
developments related to the openness of the Internet. Federal 
Communications Committee, Open Internet Advisory Committee, Open 
Internet Advisory Committee 2013 Annual Report (Aug. 20, 2013). 

[15] Communications Act of 1934, Act of June 19, 1934, ch. 652, 48 
Stat. 1064 (1934), as amended byTelecommunications Act of 1996, Pub. 
L. No. 104-104, 110 Stat. 56 (1996) (codified as amended at 47 U.S.C. 
§ 151). 

[16] 47 U.S.C. § 257(b). 

[17] 47 U.S.C. § 257(b). 

[18] Additionally, among other responsibilities, the FCC's Consumer 
and Governmental Affairs Bureau conducts consumer outreach and 
education, promotes service provider transparency, and handles 
consumer complaints, its Wireline Competition Bureau's objectives 
include ensuring choice and fairness in the development of wireline 
telecommunications services, and its Enforcement Bureau handles 
consumer protection enforcement and local competition enforcement. 

[19] These providers generally charge a base fee for data, texting, 
and talking, as well as a fee for each device that accesses the 
account, known as device fees. Since the data can be shared among 
devices, one device could use up all of an account's data allowance. 

[20] However, most providers we interviewed have acceptable, or 
excessive, use policies, under which they can take further action, 
including customer termination, if they deem the user is in 
contravention of these policies which can include excessive data use. 
Most providers do not have a clear threshold of data usage that they 
deem to violate an excessive use policy and reported they rarely take 
actions against consumers for such violations. 

[21] According to one fixed provider's website, 5 GB of data is equal 
to about 3 hours of streaming high-definition video or streaming 1,250 
songs. 

[22] Some providers said that some segments of their customer base are 
not subject to data usage monitoring because the provider has not 
fully deployed the technology needed to do so yet. However, these 
providers intend to include all their customers in the future. 

[23] Customers who previously had these unlimited plans before UBP was 
implemented have been able to continue to keep their unlimited data 
plans. 

[24] However, one researcher we interviewed said that some consumers 
may intentionally over-buy data to avoid having to pay overage charges 
and to avoid the mental strain of having to think about their data 
usage. 

[25] Peter Sevick, Net Forecast, Empowering Internet Users to Manage 
Broadband Consumption (June 2012). 

[26] CTIA, Consumer Code for Wireless Service, as of 2014. Originally 
developed in 2003, CTIA periodically reviews and updates the code. For 
example, CTIA updated the Code in October 2011 to provide details 
calling on providers to send postpaid customers free usage alerts to 
help them avoid unexpected overage charges. The code only applies to 
the signatories of the code, which cover about 97 percent of 
subscribers. 

[27] We recommended that FCC should clearly inform consumers about its 
complaint process. FCC is currently in the process of reforming its 
consumer complaint process and expects this effort to be completed by 
the end of 2014. GAO, Telecommunications: FCC Needs to Improve 
Oversight of Wireless Phone Service, [hyperlink, 
http://www.gao.gov/products/GAO-10-34], (Washington, D.C.: Nov. 10, 
2009). 

[28] 47 C.F.R § 8.3. The Transparency Rule requires Internet providers 
to sufficiently publicly disclose accurate information regarding the 
network management practices, performance, and commercial terms of 
their services so that consumers can make informed decisions regarding 
their use of Internet services. 

[29] FCC, Enforcement Advisory: Broadband Providers Must Disclose 
Accurate Information to Protect Consumers, Public Notice, 29 FCC Rcd. 
8606 (2014). 

[30] The advisory states that the Transparency Rule "prevents a 
broadband Internet access provider from making assertions about its 
service that contain errors, are inconsistent with the provider's 
disclosure statement, or are misleading or deceptive." The Advisory 
also states that "advertisements and other public statements that 
broadband Internet access service providers make about their services" 
must be "accurate and consistent with any official disclosures that 
providers post on their websites or make available in stores or over 
the phone." 

[31] The ACSI measures the satisfaction that U.S. consumers have with 
the quality of a number of different types of services, including 
Internet services. American Customer Satisfaction Index, ACSI 
Telecommunications and Information Report 2014, (Ann Arbor, MI: May 
2014). 

[32] Among other factors scoring low and dropping in the 2014 ratings 
are: service interruptions, understanding bills, reliability and 
consistency of service, performance of internet during peak hours, 
provider website satisfaction, and call center satisfaction. Factors 
that increased, but still scored low relative to other consumer-
industry satisfaction scores were overall data transfer speed and 
quality of video streaming. 

[33] For example, based on one fixed provider's online data estimates, 
a user visiting an average of 10 web pages a day would only consume 
about 96 MB of data from those visits. 

[34] John Horrigan and Ellen Satterwhite, Americans' Perspectives on 
Connection Speeds for Home and Mobile Devices, Summary of Finding, FCC 
(Washington, D.C.: June 2, 2010). 

[35] Union des Consommateurs, Limited Usage of Mobile Internet Access 
Services: Informing and Protecting Consumers (Montreal, Quebec, 
Canada; June 2013). 

[36] For example, older devices may be unable to access 4G networks 
that allow for more advanced online experiences. 

[37] Andrew Odlyzko, Bill St. Arnaud, Erik Stallman, and Michael 
Weinberg, Know Your Limits: Considering the Role of Data Caps and 
Usage Based Billing in Internet Access Service, Public Knowledge (May 
2012). 

[38] According to Sandvine, these users view about 100 hours of 
streaming video a month. Sandvine Global Internet Phenomena Report 1H 
2014 (Waterloo, Ontario, Canada: May 15, 2014). 

[39] Some of the fixed data allowances we reviewed are as low as 150GB. 

[40] Federal Communications Commission, Office of Engineering and 
Technology and Consumer and Governmental Affairs Bureau, 2014 
Measuring Broadband America Fixed Broadband Report: A Report on 
Consumer Fixed Broadband Performance in the U.S. (Washington, D.C.: 
June 2014). 

[41] FCC, Internet Access Services: Status as of June 30, 2013 
(Washington, DC: June, 2014). FCC considers all households in a given 
census tract as being able to get service from a provider if that 
provider offers service anywhere in that tract to create the number 
from which these data are drawn. However, many households may not have 
service from every provider operating in the tract. In addition, to 
the extent providers do not have subscribers at speeds of 6 Mb/s 
download and 1.5 Mb/s upload they are not counted as offering service 
in the tract at all. As a result, the figures do not necessarily 
reflect the number of provider choices available to any particular 
household. 

[42] Federal Communications Commission, 16th Annual Mobile Competition 
Report, 28 FCC Rcd. 3700 (2013). 

[43] These prices are for shared data plans that allow customers to 
share the data allowance among up to 10 devices. They also include 
unlimited talking and texting for all devices and include device fees 
of $10 to $40 per device per month, depending on the device. 

[44] Lyons, Daniel A. Internet Policy's Next Frontier: Data Caps, 
Tiered Service Plans, and Usage-Based Broadband Pricing. Boston 
College Law School (March 26, 2013.) 

[45] Pew Research, 2013. 

[46] While the total price for such plans is lower than larger data 
plans, the price per GB of data is higher. For example, the price for 
one provider's 500 MB plan equates to $60 per GB of data, while its 2 
GB plan price equates to $25 per GB of data. 

[47] FCC reported median monthly usage of cable subscribers as 47.6 
MB; median usage of subscribers to digital subscriber line service 
from phone companies as 21.9 MB; and median usage of subscribers to 
fiber optic service as 32.3 MB. FCC, 2014 Measuring Broadband America, 
Fixed Broadband Report (Washington, D.C.: June 2014). One provider 
does offer a low-cost low-speed (5 Mb/s download) option for 
qualifying low-income consumers. However, subscribers to this option 
have to meet eligibility requirements. 

[48] FCC, Open Internet Advisory Committee, FCC Open Internet Advisory 
Committee 2013 Annual Report (August 20, 2013). 

[49] FCC collects relevant data from providers in urban areas from its 
Urban Rate Survey. It collects relevant data from providers in rural 
areas through its Form 481 data collection (Carrier Annual Reporting). 

[50] For example, a mobile provider may enter into an agreement with a 
streaming audio service so that when that provider's customers access 
that streaming audio content, its data use does not count towards 
their data allowance. However, their use of streaming audio from other 
content providers may count. 

[51] Marshini Chetty, Richard Banks, A.J. Bernheim Brush, Jonathan 
Donner, and Rebecca E. Grinter, "You're Capped!" Understanding the 
Effects of Bandwidth Caps on Broadband Use in the Home. ACM Conference 
on Human Factors in Computing Systems (May 2012). 

[52] We only reviewed consumer plans and did not include commercial 
Internet services for business customers. In addition, we did not 
include mobile pre-paid Internet plans or satellite Internet providers 
as they are a small part of the market. 

[53] The mobile providers were: AT&T Wireless, Sprint, T-Mobile, and 
Verizon Wireless. Fixed providers were AT&T, Bright House Networks, 
Cablevision, Century Link, Cox, Charter, Comcast, Frontier, Mediacom, 
Time Warner Cable, Suddenlink, Verizon, and Windstream. 

[54] See 16th Mobile Competition Report, supra note 7. 

[55] See [hyperlink, 
http://www.leichtmanresearch.com/press/052014release.html]. Accessed 
September 19, 2014. 

[56] FCC defines light use as basic functions such as e-mail, web 
surfing, and basic streaming video; moderate use as basic functions 
plus one high-demand application such as streaming high-definition 
video or online gaming; and heavy use as basic functions plus more 
than one high-demand application running at the same time. Because 
participants self-identified their use and may not have fully 
understood data usage, these identifications were imperfect, and we 
did not analyze results from the two types of groups separately. 

[End of section] 

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