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Discrimination and Neutrality on the Internet: the Zero Rating Case

The following slides have been presented by Augusto Preta (steering committee member of Italian Academy of the Internet Code) and Peng Peng (PhD student – University of Bologna) at European Association of Law and Economics Annual Conference, held in Vienna on September 17th-19th 2015


Zero-rating (toll-free data) is the practice of mobile network operators (MNO) and mobile virtual network operators (MVNO) not to charge end users for data usage of specific internet content and applications through the MNO’s mobile network. For example, several MNOs made Facebook, WhatsApp data usage free to attract more college students.

Clearly zero-rating schemes allow end users to enjoy mobile internet “carefree” particularly with the “data hungry” services such as video streaming. Although zero-rating certain applications benefits consumers from using the subsidized services, this practice has also been criticized as anti-competitive and against the net neutrality principle which has been enshrined in law in several countries. In addition, zero-rating deals are considered more problematic if such offers involve the MNOs’ vertically integrated video and cloud services.

This paper will focus on the zero-rating arrangements between MNOs and content providers (CPs), discuss the regulations applied to the zero-rating cases from 2014 in the context of net neutrality, and stress the cost and benefit of the zero-rating schemes. The law and economics literature suggests that the practice of zero-rating is presumptively welfare-enhancing with the economics foundation of network effect, differential pricing, and two-sided market.

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