Internet usage-based pricing confuses consumers, U.S. watchdog finds

Consumers often incorrectly estimate how much data they consume online and pay internet providers for more downloading and uploading than they actually do, a U.S. government watchdog said in findings released on Tuesday.

The preliminary observations of U.S. consumers were from the Government Accountability Office's review of the practice of usage-based pricing, in which consumers pay internet service providers (ISPs) for a specific amount of data they agree to consume instead of a flat fee for unlimited data.

Users who go over data caps usually face extra charges or slower internet speeds.

In a study requested by California Representative Anna Eshoo, the GAO, the investigative arm of Congress, found consumers often were unclear about what online activities consumed the most data and paid ISPs too much either for data they did not use or through overage fees for exceeding data caps.

Most wireline ISPs told the GAO that usually only oneper cent to twoper cent of users exceeded their data caps.

However, data from Canada-based ISP research firm Sandvine showed that people relying on the web to replace traditional TV services consumed an average of 212 gigabytes of data a month, which is close to many existing data allowances, the GAO said, and could mean more consumers may be exceeding their caps in the future.

In Canada, most internet packages from major internet providers such as Bell and Rogers have data caps below 212 gigabytes per month, although Rogers gives users the option to pay an extra monthly fee for higher caps or unlimited usage.

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All four top U.S. wireless carriers Verizon, AT&T , Sprint and T-Mobile US offer tiered pricing plans and so do seven of the top 13 wireline ISPs, though only three said they charged overage fees, GAO said.

ISPs say usage-based pricing allows consumers who use less data to pay accordingly and, in the case of wireless carriers, helps manage congested networks.

Usage-based wireless plans deemedokay

Consumers in eight focus groups the GAO conducted in Baltimore, Des Moines, New York City and Las Vegas expressed few serious concerns about usage-based pricing of wireless internet plans, but had "strong negative reactions" to such pricing of wireline ISPs.

Those worries stemmed from the consumers' heavy reliance on Internet access at home, where they were not used to worrying about data limits, and concerns that ISPs would use data caps as a loophole to increase their bills.

However, the GAO said that the worries were in part based on misconceptions about how little data is consumed by activities such as online shopping or social media applications. At the same time, automatic updates of programs or applications could be a hidden source of data use and ISPs themselves sometimes differently estimated data use of similar web apps.

The full GAO report is due in November. The preliminary findings come as the Federal Communications Commission is looking to set new rules for how ISPs should manage Web traffic on their networks.

Some consumer advocates have expressed worries that ISPs may hurt competition by exempting affiliated services from data caps.

The GAO's preliminary observations stated that usage-based pricing could limit innovation or creation of data-heavy apps because some consumers may restrict their Internet use to save money.