Internet Data v. Speed: Which Would You Choose?

Internet Data v. Speed: Which Would You Choose?

Most cell phone-carrying Americans have contracts with their cell phone service providers that include monthly limits on data usage, otherwise known as data caps. These providers apply expensive overage fees or other penalties for using more data than is included in the plan. The result of overage fees and penalties is that people reduce their data usage significantly when they might risk going over the data cap. Conversely, people who are closing in on the end of their monthly billing cycle, but still have lots of data usage left, will increase their data activity in order to get their money’s worth.

While this sounds like an obvious conclusion in the context of people’s cell phone plans, it also rings true for data caps on residential Internet. Such caps on home broadband are rare, but some providers may begin to use them in the near future. A 2012 study published by the National Bureau of Economic Research took actual data on data usage from a North American Internet provider. It showed that users of residential Internet tended to act as if there was a data cap monthly.

The study shows that in 2012, the particular Internet provider studied offered higher speeds to those who purchased capped plans. The provider likely did so as an incentive to get users of unlimited data plans to switch plans. According to the study, people on unlimited data plans paid less per gigabyte of data compared to those on capped plans- roughly $1.68 versus $3.02- a difference of nearly 80%. Those on limited plans got more data for their money, although at slower speeds. In the business sense, that is lost money for the Internet provider.

So, the question becomes whether people will pay for greater speed or more data usage. According to the 2012 study, Internet subscribers were far more willing to pay for a little more speed. In fact, users were willing to pay an average of $2.00 for an extra megabit per second of speed. Conversely, the study showed that people would likely only pay $0.36 for an extra gigabyte of data.

However, very recently, as Americans increasingly use the highly data-intensive Internet phenomenon of streaming video, it appears that the amount of data used by providers may prove more valuable than speed. Streaming video, for example, greatly increases the amount of data an average user consumes. If more providers impose data caps, users may find themselves reaching those caps in a shorter period of time.

While Comcast’s Gigabit Pro Internet service offers speeds at 200 times the national average, there is the issue of whether (today) people will ever need that much speed. Although people will likely find a way to use that speed in the future, it does not appear necessary now. It does suggest that people may want to maintain their unlimited data usage plans for as long as possible as the future is always closer than it looks.

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