The “all-you-can-eat buffet” approach to Internet access, which has ruled the online world for the past decade, is slowly turning into a “pay-as-you-go” affair. Recently, major Internet Service Providers (ISPs) have rolled out plans to limit how much Internet data individuals can consume in a particular billing period. Starting Oct. 1, Comcast will impose a 250GB monthly cap on Internet data, and it’s not alone. Frontier and Cox have been said to have their own bandwidth caps, while Time Warner has been testing caps ranging from 5 GB to 40 GB in Beaumont, TX. Some companies are testing “pay-per-byte” pricing schemes, in which the more data you download each month, the more you pay. The overall segment of these so-called bandwidth hogs is relatively small; Comcast’s newly submitted broadband management plan to the FCC on Sept. 19 claims that less than one percent of its customers will be affected, while Time Warner has said that about 5 percent of its users consume more than 40GB per month.

The underlying logic for caps is simple: heavy users overburden the Internet’s “tubes,” slowing the experiences of everyone else. Once marketed as “unlimited,” Internet access provisions were rewritten over the past year as consumers began sharing more P2P files, and downloading data-heavy content.

At first glance, 250 GB seems to be a large amount of data, and most consumers should have no cause for concern. But heavy users could experience an immediate effect, from higher prices to a cut-off of service if they continually consume more Internet data than they are allowed. These caps also set a precedent for the Internet’s future: how much content can be consumed? At what cost? How will advertisers target their consumers in a bandwidth-conscious, pay-as-you-go market? While many argue as to the legitimacy and generosity of various caps, it is possible that online media consumption and advertising may change forever.

• What counts as “bandwidth”? Will cable companies count all of their immediate services and those of partner sites toward monthly usage? Is VoIP usage “data”? Will each company institute its own rules for what counts and does not count against bandwidth consumption? If ISPs start including their own content but blocking that from other sources, will their actions be viewed as anti-competitive? Censorship? Will limiting Internet data stifle long-term innovation? Will one ISP’s customers change their online behavior and remain loyal to that ISP’s content/partners to avoid higher charges?
• Competitive Landscape: As more content becomes digital and downloadable, bandwidth caps could play a significant role, affecting how content is consumed. Sites like Fancast and Hulu are becoming popular platforms for consumers to view content on demand and at their own leisure. According to Nielsen Online, Hulu’s unique visitor base has grown from 909,000 in February 2008 to 2,482,000 in August 2008 (+173%). AppleTV, iTunes, Netflix’s Roku and the Xbox 360 are among the many other options for consumers to download content at varying degrees of bandwidth consumption. Comcast’s cap of 250 GB is generous, but what about Time Warner’s lower limit 5GB cap? A single HD movie downloaded on an Xbox 360 can eat up between 4GB and 5GB. The implementation of bandwidth caps has the ability to shift the overall market to one that revolves around a bandwidth shortage.
• Innovation: Websites whose business model is based on consumers streaming and downloading content will be impacted if consumers fear they will consistently be in jeopardy of exceeding their monthly caps. Video streaming and download sites such as Hulu might not enter the future marketplace if entrepreneurs think that customers are being squeezed to limit, not access content. The overall growth of gaming, picture sharing, and video sites could be stifled given lower bandwidth caps as households are comprised of several users.
• Advertising: Projections for online ad spending show positive growth given current economic concerns. eMarketer revised projections for online ad spending in 2008 to be $24.9 billion in the U.S., expecting growth to be more than any other major medium. If consumer behavior changes due to bandwidth caps, how will advertisers change their targeting methods? For example, if sites such as Comcast-owned Fancast are excluded from the overall bandwidth cap for Comcast customers, advertisers may focus more of their marketing dollars on the site given the increased level of consumer visits. But how will other advertisers and sites fare? Would Dove’s “Beauty” video have been so wildly viral if it had exceeded a bandwidth cap?

According to the Yankee Group, the broadband services market is expected to near $1 trillion by 2012. As consumption continues to grow, how will the precedent of capping bandwidth affect the overall market and consumer behavior? The question remains whether this is a viable route that will ultimately benefit consumers, or is it merely a ploy to limit competing services and to build market share within a digital world. Only time will tell, but even though bandwidth caps will not affect many in the short-term, they have the very real possibility to alter how online content is consumed and ad dollars are spent.