Do Prohibitions on Sender Payments and Prioritization of Traffic Harm Broadband Consumers?
Posted: 26 Mar 2016
Date Written: March 25, 2016
This paper will offer an unsponsored assessment whether Open Internet initiatives constrain consumers and service providers from exploiting opportunities to reduce out of pocket costs without significant harm to marketplace competition. The U.S. Federal Communications Commission and other National Regulatory Authorities seek to prevent Internet Service Providers (“ISPs”) from prioritizing traffic in exchange for additional compensation. More broadly it appears that regulators favor compensation arrangements where retail broadband consumers bear the full cost of access rather than allow ISPs to augment monthly subscription payments with surcharges of specific upstream ISPs and content providers. The FCC prohibits most forms of paid prioritization based on the assumption that these “pay to play” arrangements would bifurcate the Internet into fast and slow lanes, based on ability and willingness to pay.
The paper concludes that a total prohibition on sender pay arrangements likely would harm consumers by preventing ISPs, serving end users, from erecting a double-sided access market paid for by a combination of retail broadband subscriptions and surcharges of upstream operators. The paper acknowledges that ISPs might try to ration access with an eye toward nudging or pushing upstream content providers to premium service arrangements. Likewise, ISPs might try to gouge both upstream and downstream users of their content delivery services. On the other hand, the potential exists for new pricing arrangements that reduce broadband subscribers’ out of pocket costs.
The paper will identify prior instances where media consumers accrue free rider and other opportunities to consume subsidized content. Additionally, it will report how credit card companies often offer service without a monthly or annual fee, opting instead to secure “card swipe” fees from vendors. The paper also will consider whether current broadband access subsidy arrangements (commonly referred to a sponsored data and zero rating) on balance enhance consumer welfare, or distort the competitive marketplace for content.
The paper concludes that the consumers of media and telecommunications services have benefited from both self-help and new entrepreneurial services that use arbitrage and other strategies that result in consumer cost savings. The paper identifies longstanding models, such as advertiser supported access to commercial broadcast radio and television content and resale. More recent models include international call-back telephone services that exploit differences in regulator-prescribed accounting rates, mobile virtual network operators and Voice over the Internet Protocol telephone service. Examples of consumer self-help include the use of advertising blockers to conserve often sparse monthly data use allotments as well as the use of zero rating/sponsored data options.
On balance, it appears that consumers have more to gain from ISP pricing initiatives. However the paper recommends that NRAs implement strong transparency, truth in billing and complaint resolution rules to ensure that innovative broadband pricing arrangements do not harm consumers and unfairly handicap competitors.
Keywords: open internet, network neutrality, paid prioritization, best efforts routing, better than best efforts routing, QOS discrimination, price discrimination, double-sided markets, platforms
JEL Classification: K23, L51, L82, L86, L96, L98
Suggested Citation: Suggested Citation