1). 2). 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. 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. In  particular, consumers report low levels of satisfaction with “ease of  understanding their bill” and “variety of plans.”

	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. In addition, focus group participants exhibited many instances of  confusion and a lack of understanding of their fixed-Internet data usage. 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. Participants cited the  importance of the Internet for commerce, education, and employment  and expressed concern that UBP could limit their access to the  Internet. 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. 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. However, some industry stakeholders we interviewed said that UBP may  not be warranted to address the data usage of the heaviest users. 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. FCC does not track providers’ use of UBP as FCC  only recently started collecting data for the specific purpose mentioned  above. Some Internet users, such as heavy data users, may pay more  for access under UBP. Providers could implement UBP in  a way that benefits consumers—for example, by offering low-data, low- cost plans for customers who do not want to pay for an unlimited data  plan they do not need. However, providers—especially those facing  limited competition—could use UBP as a means to increase their profits  which could result in UBP having negative effects, including increased  prices paid by consumers, reductions in content and applications  accessed by consumers, and increased threats to network security. While 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. 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. 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. 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 of the largest 13 fixed and 4  mobile providers in order to cover 98 percent of each market. 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  interviewed the 4 mobile and 13 fixed providers mentioned above  regarding the potential effects of UBP on consumers.
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.