Wireless Net Neutrality Regulation and the Problem with Pricing: An Empirical, Cautionary Tale

Abstract:     
The imposition of network neutrality regulation on the mobile telecommunications market puts consumers at risk of facing higher prices and fewer Internet access options. The decision to regulate the mobile industry, which emerged from the network neutrality debate originally confined to telephone and cable ISPs, has not been disciplined by consideration of the key empirical question: Will the proposed network neutrality regulation increase consumer welfare in the wireless Internet access market. In addressing this question, I employ an econometric model to examine the possible consumer welfare effects of a zero-price access rule proposed to assure neutral access of applications and equipment to the wireless Internet networks. Since no data yet exist for direct analysis, the consumer welfare effects of past price and entry regulation are presented as predictors of future regulatory outcomes. The empirical findings,which have significant regulatory policy implications, show that whereas mobile telecommunications price regulation has been ineffective at enhancing consumer welfare, regulation increasing market entry conveys distinct consumer benefits. Accordingly, I conclude that to enhance consumer welfare, network neutrality regulation, such as the proposed zero-price access rule, should be discouraged in favor of regulation facilitating investment and market entry.

Number of Pages in PDF File: 52

Keywords: regulation, net neutrality, consumer welfare, empirical analysis, econometrics, mobile telecommunications

JEL Classification: C13, C23, D12, D21, D43, K23, L51, L52, L96

Accepted Paper Series