Net Neutrality Regulation in the Mobile Telecommunications Market: A Cautionary Tale from the Era of Price Regulation

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 competitive structure of the mobile industry. As this Article explains, key to regulation are two threshold empirical questions: (1) whether the mobile telecommunications market is sufficiently competitive to provide a preferred mix of net neutral attributes, and (2) regardless of market competitiveness, whether regulation would further increase consumer welfare. In addressing both questions, this Article first chronicles the competitive and regulatory history of the industry. Next, it employs an econometric model to examine the possible consumer welfare effects of proposed network neutrality regulation. Past regulation has been extensive in the industry, and includes wholesale price regulation, which is analogous to proposed open access net neutrality requirements. 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, this Article concludes that, to enhance consumer welfare, network neutrality regulation limiting competitor behavior should be discouraged in favor of regulation facilitating investment and market entry.

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

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

Working Paper Series