Zero-Rating and Net Neutrality: Who Wins, Who Loses?
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An objective of network neutrality is that the design of regulations for the Internet will ensure that it remains a public, open platform where innovations can thrive. While there is broad agreement that preserving the content quality of service falls under the purview of net neutrality, the role of differential pricing, especially the practice of zero-rating remains controversial. Even though some countries (India, Canada) have banned zero-rating, others have either taken no stance or explicitly allowed it (South Africa, Kenya, U.S.). In this paper, we model zero-rating options available between Internet service providers (ISPs) and content providers (CPs) and use these models to better understand the conditions under which offering zero-rated services are preferred, and who specifically gains in utility. We develop a formulation in which providers' incomes vary, from low-income startups to high-income incumbents, and where their decisions to zero-rate are a variation of the traditional prisoner's dilemma game. We find that if zero-rating is permitted, low-income CPs often lose utility, whereas high-income CPs often gain utility. We also study the competitiveness of the CP markets via the Herfindahl Index. Our findings suggest that in most cases the introduction of zero-rating reduces competitiveness.
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