A recent Wall Street Journal (WSJ) article (requires subscription) chronicles the increasingly problematic effect of data caps on the quality of residential subscribers' Internet access experience.

Also known as a bandwidth cap, a data cap is a monthly bandwidth usage limit Internet Service Providers (ISPs) sometimes impose on subscribers at their standard monthly rates. While some ISPs charge customers more for exceeding their monthly bandwidth caps, in other cases ISPs may even cut off a customer’s service completely.

The problem is also harming companies like Netflix and Sling TV who are losing customers who can’t justify paying for a high capacity video streaming service that’s only available until they hit their data caps partway through the month. In response, Netflix lowered the video quality for users on ISP networks that use data caps as a way to help them avoid the limitations. The plan worked, but in the process Netflix angered customers, who blamed both the ISPs and the streaming service for the lowered video quality.

It's Not All About The Money

The problem goes beyond the extra fees charged to customers who use a lot of data. The WSJ article cites two Internet users who’d like to join the growing number of “cord cutters” who are dropping television service for Internet-based video. As one man put it:

“I wouldn’t have regular TV if not for the data cap,” he says. “Comcast has got me by the throat.”

Another added:

“I was planning to cut the cord when my DirecTV contract is up,” he says. “This is essentially a ploy to keep people from cutting cable in my opinion.”

An increasing number of subscriber complaints and suspicions about the accuracy of measuring bandwidth usage heighten concerns.

Feds Take Notice

The Government Accountability Office released a report at the end of 2014 expressing their concern about ISPs abusing the use of data caps. At the time, the FCC said that they had not received enough complaints about the problem to merit action. In 2015, as this new WSJ article notes, the FCC received an unprecedented number of complaints about data caps. The problem is...

A few weeks ago, I read that Wall Street traders had invested $300 million in a new fiber optic line between Chicago and New York City to shave a few milliseconds off the existing route in order to gain a massive advantage for their computer trading algorithms.

This investment, which could have brought real value to hundreds of thousands or even millions of people in the form of better broadband connecting residents and local businesses was instead squandered on a practice that adds no value to markets. In fact, we might argue it actually distorts markets.

But I bring it up here after reading a fascinating development from Anton Troianovski of the Wall Street Journal. Wall Street traders are now building microwave towers to shave milliseconds off the fiber routes.

"Self," I said, "How can it be that microwave relays are faster than fiber optic lines?" Turns out that these wireless shots can be created in straighter paths, which means the signal has to travel farther in the fiber routes. Once again, it turns out the speed of light can be a limiting factor.

But microwave networks can be faster than their fiber-optic counterparts. Signals shot in a straight line between microwave dishes within sight of each other don't have to negotiate the mountains, buildings and other obstacles that lengthen the trip by cable. Because of their height, cell towers are prime locations for the dishes.

On the downside, microwave networks are less reliable than cables, because signals can be disrupted by bad weather and other interference. They also can't carry as much information.

So I figured this was a good weekend story because of the wireless/fiber angle but also because it is a reminder that Wall Street invests narrowly for its benefit. Extracting value from the market by having a 1 millionth of a second advantage over everyone else provides no value for the rest of us. This is not a system that is rationally allocating capital, it is a system that allows vampires to suck the life out of us. And that is a very good reason to find ways of being self-reliant.