The Mixed Blessing in Subsidized Internet Access

50 Pages Posted: 5 Nov 2016

See all articles by Rob Frieden

Rob Frieden

Pennsylvania State University - Dickinson School of Law; Pennsylvania State University, Bellisario College of Communications and Penn State Law

Date Written: November 4, 2016


This paper will offer an unsponsored examination of current disputes whether national regulatory authorities (“NRAs”) should permit broadband carriers and content providers, such as Facebook, to subsidize broadband access to a limited, “walled garden” of content. The subsidy makes it possible for sponsored data access without debiting a monthly data allowance. Wireless subscribers, with service caps typically set at 1-5 Gigabytes allowed per month, can quickly exhaust allotment when streaming video content.

The paper concludes that even though carriers and content providers serve profit maximizing goals in zero rating arrangements, the practice can have positive spillover effects including more access by impoverished users, stimulated interest in diversifying uses of wireless handsets and possible migration to broadband access options that equally support content consumption and creation. While carriers and content providers can “groom” tentative, subsidized users into paying ones, zero rating also provides first time access opportunities, particularly for individuals least able to afford even extremely low cost access options available in many lesser developed countries. Additionally zero rating can stimulate interest by consumers financially able to afford unsubsidized access, but heretofore uninterested in, or uninformed about the benefits.

The paper examines zero rating without the inclination to pass judgment using an absolute either/or basis, as often occurs on issues collectively framed as network neutrality, or open Internet. A more nuanced view identifies both costs and benefits in allowing zero rating. On balance, welfare enhancing benefits appear to exceed costs, including harm to competition and some consumers. This finding grows more conclusive for developing countries where access of any type provides benefits that well exceed the costs to consumers and competition.

The paper identifies ways for carriers and NRAs to limit subsidies in ways that accrue social benefits without creating an unlimited “free rider” opportunity for all wireless subscribers, regardless of ability to pay for service. The paper suggests that carriers should offer zero rating opportunities on a conditional and promotional basis thereby making it more difficult for existing subscribers simply to use zero rating access as a way to avoid paying surcharges for exceeding data caps. While NRAs should not micro-manage carriers’ service pricing, establishing qualification rules for access to zero rating fits with other universal service initiatives that rely on well calibrated and targeted subsidies to simulate broadband service demand and supply.

Keywords: zero rating, sponsored data, network neutrality, open internet, cross-subsidies, universal service, broadband

JEL Classification: K23, L51, L82, L88, L96

Suggested Citation

Frieden, Rob, The Mixed Blessing in Subsidized Internet Access (November 4, 2016). Available at SSRN: or

Rob Frieden (Contact Author)

Pennsylvania State University - Dickinson School of Law

Lewis Katz Building
University Park, PA 16802
United States


Pennsylvania State University, Bellisario College of Communications and Penn State Law ( email )

102 Carnegie Building
University Park, PA 16802
United States
814-863-7996 (Phone)
814-863-8161 (Fax)


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