In this presentation I will talk about zero-rating, an emerging business practice consisting in a mobile internet service provider (ISP) excluding the data generated by certain content providers (CPs) from its consumers’ monthly data cap. A typical example from Singapore is M1’s Entertainment Data program under which M1’s users can watch an unlimited amount of Netflix movies through the 4G network as doing so does not count against their data cap. Zero-rating constitutes a violation of the net neutrality principle as not all data packages are treated equally: some count against users’ data cap and some do not. Moreover, zero-rating has become a widespread practice: a study in 2014 covering 180 mobile carriers serving 2.4 billion customers worldwide found that 49% of mobile ISPs engaged in some form of it. Consequently, these arrangements have recently attracted regulatory scrutiny all over the word. For instance FCC, the US regulator, is expected to change its zero-rating rules under the incoming Trump administration.
My paper analyzes zero-rating incentives of a monopolistic ISP facing a capacity constraint in a two-sided market where consumption provides utility for homogeneous consumers as well as advertising revenue for CPs. Focusing on a market with two CPs competing with each other and all other content which is never zero-rated, I identify parameter regions in which zero, one or two CPs are zero-rated. Surprisingly, the ISP may zero rate content when content is either very unattractive or very attractive for consumers, but not in the intermediary region. I show that zero-rating harms consumers if content is unattractive, whereas it improves social welfare in the case of attractive content.
Robert Somogyi is a postdoctoral research fellow at the CORE research center of Université catholique de Louvain. His research interests are in microeconomic theory, industrial organization of the digital economy and agent-based modeling.
In his Ph.D. thesis, prepared at Ecole Polytechnique, Paris, he analyzed the price setting behavior of firms that face capacity constraints under various market settings. He has recently started working on issues related to the digital economy in general and net neutrality in particular. In addition to his theoretical work, he is also interested in using the methodology of agent-based simulations to answer questions that are intractable with more mainstream methods. In this line of work, he published an article about price rigidity and strategic uncertainty, he is currently also working on intergenerational knowledge transfer and education.
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