37 Pages Posted: 1 Apr 2015 Last revised: 15 Oct 2015
Date Written: August 15, 2015
Zero rating, the practice of not charging data to a mobile broadband subscriber’s contract, is emerging a potent issue in telecom policy. While zero rating of mobile subscriptions has been extant for almost two decades with little to no controversy.
Zero rating has become increasingly popular in both developed and developing countries and plays a particularly important role in developing countries, where the costs of mobile data services are higher relative to per capita incomes. About half of all mobile operators employ the strategy in some way. In fact network operators have used the equivalent of such strategies to incentivize both subscribers and content providers to be part of their network for well over a century.
In the last two years, however, zero rating become a flashpoint in the net neutrality debate. Whether a country allows it has become a litmus test for net neutrality supporters to certify the strength of the rules. At issue is whether operators and their customers should have the freedom to create contracts for mobile broadband service based on their preferences and constraints or whether mobile Internet service must be sold in a so-called “neutral” fashion where the only differentiating parameters are speed and megabytes. As the Internet increasingly transitions to mobile platforms, and the likelihood that the next two third of world who yet to come online will do so via mobile, who and how to provision mobile bandwidth has is an important, complex issue.
This paper examines the arguments for and against zero rating and the charges that zero rating hurts competition and consumers. It formulates 5 assertions based on the alleged harms and attempts to test them with empirical analysis from quantitative and qualitative perspectives. The paper reviews the leading database of financial information of the world’s mobile operators to see whether the impact of zero rating may be observed, for example with undue financial benefits earned by operators through the use of zero rating. To understand the issue more closely, the paper reviews zero rating in Chile, Netherlands, and Slovenia, countries which have banned some forms of the practice. The paper then examines whether there is harm to consumers and innovation by reviewing a leading database of mobile application market data. The paper concludes by suggesting reasons why zero rating is maligned in telecom policy debates.
Keywords: zero rating, sponsored data, broadband adoption, net neutrality, data caps
JEL Classification: L5
Suggested Citation: Suggested Citation
Layton, Roslyn and Elaluf-Calderwood, Silvia Monica, Zero Rating: Do Hard Rules Protect or Harm Consumers and Competition? Evidence from Chile, Netherlands and Slovenia (August 15, 2015). Available at SSRN: https://ssrn.com/abstract=2587542 or http://dx.doi.org/10.2139/ssrn.2587542