Network Neutrality: Pricing perspective

Bikram Acharya12-12-2012

Outline

• Introduction – Proponents views– Opponents view– How it came to floor

• Methodologies• Conclusion

Keywords

• Network Neutrality• Pricing scheme: Flat rate and Usage base• Tiered services

4

Principles of Network Neutrality

Transparency. Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services;

No blocking. Fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services

No unreasonable discrimination. Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.

Network Neutrality• Openness vs. managing traffic• Debate in public, struggle in

legislation, war in the Internet• ISPs are already installing

middleboxes capable of degrading/changing/blocking popular applications

• But without going either sides …we want to facilitate network accountability

Network Neutrality• Internet was based on the fundamental principles of openness and

non-discrimination• Today the Internet is an information highway where anybody –no

matter how large or small, how traditional or unconventional –has equal access (Google,2012)

• Consumers and innovators do not have to seek permission before they use the Internet to launch new technologies, start businesses, connect with friends, or share their views.

• usually means that broadband service providers charge consumers only once for Internet access, do not favor one content provider over another, and do not charge content providers for sending information over broadband lines to end users (Hahn, R., & Wallsten, S. ,2006).

Network Neutrality

• Internet is the primary global network for digital communications

• information packets are transported on the Internet under ‘‘network neutrality” and does not distinguish in terms of price between bits or packets depending on the services

• Contract of ISP with customer gives the customer access to the whole Internet through a physical or virtual pipe of a certain bandwidth and same as ISP to backbone provider

What proponent say• Control of data– Cable and internet company must allow

ISPs free access to their networks and should not screening or filtering of data

• Digital rights and freedoms – Ensures that the Internet remains a free

and open technology • Competition and Innovation– Preserving Internet standards End-to-

end principle

What opponent say• Innovation and investment• Tiered internet could make for a better internet• Illegally downloading music, movies, software, etc. Copyright.• Bandwidth availability• Opposition to legislation• Spam, Virus

“Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it”- Ed Whitacre, CEO, AT&T

https://www.google.com/intl/en/takeaction/whats-at-stake/

How it came to floor• Rise of Internet bandwidth:

causing network congestion to network – Terrestrial network construction,

upgrade, and operating costs– Undersea cable construction,

upgrade, operating, and unit costs

• Rise of bandwidth intensive application

• Application based tiered services

Source: Telegeography.com

Pricing scheme: Flat rate and Usage base

• Service providers are discriminating traffic either technological purposes (bit torrent) or for economic (low incentive providing high bandwidth application)

• Flat Rate Pricing scheme:– flat-rate pricing scheme, the ISP generally has an

incentive to discriminate against certain content providers' packets by increasing the packet delay (Hwang, J., Lee, D., Lee, K, 2011).

– economic welfare would be better served if end users were charged flat rates instead of usage-sensitive prices(Robert J. B, and Paul M. R, 1987)

– usage-based pricing scheme, the ISP has no incentive to discriminate against packets (Hwang, J., Lee, D., Lee, K, 2011).

Pricing scheme to motivate network provider

Source: http://torrentfreak.com/bittorrent-still-dominates-global-internet-traffic-101026/

Examples

• charge consumers more than “only once” through usage based pricing

• charge content providers through side-payments

Pricing scheme: Flat rate and Usage base

ISP

Customer

CP

• Internet users• Network provider• Content provider

The two providers play a game to settle on their (usage based)prices. The users are modeled through their demandresponse.

Content provider gets revenues from advertisement, pay per click

Provider i’s usage-based revenue is given by

D0 is parameter under flat rate pricing

Demand should be non negative

For non-cooperative gameFor i=1,2

Which leads p1*=p1

*=D0/3d and demand at equilibrium D*=D0/3Revenue of each provider is Ui

*=D02/9d

Pricing scheme: Flat rate and Usage baseStage utility

Basic non-cooperative

cooperative

Side-payments->non-cooperation

Advertising revenues Non-cooperation

cooperation

ISP providing multiple service classes

cooperation

Stackelberg equilibrium ISP Leader and CP Follower CP Leader and ISP Follower

Conclusion• Total demand is not changed and the side payment controls by

the ISP so which should be regulated• In either case of leader-follower dynamics, the leader obtains

twice the utility of the follower at the Equilibrium• This model considers monopolistic scenario in either case of the

leader changes usage price there is no change in equilibrium• competitive markets will reach an efficient equilibrium if each

user is charged a usage-sensitive price set equal to their marginal contribution to congestion (Begrlas, E., 1976)

• Social Welfare will be maximized if usage based pricing scheme is used.

Reference

Altman,E., et al, 2011, A model of network neutrality with usage-based pricesHwang, Junseok , Lee, Daeho and Lee, Kayeong, 2011 ,Internet Pricing and Network Neutrality: How Internet Pricing Schemes Affect the Incentives of Internet Service Providers Robert J. B, and Paul M. R, 1987, Ski-Lift Pricing, with Applications to Labor and Other MarketsGoogle,2012, ,“A Guide to Net Neutrality for Google Users". Retrieved 29,Nov,2012Jan Krämer, Lukas Wiewiorra,2012, Network Neutrality and Congestion Sensitive Content Providers: Implications for Content Variety, Broadband Investment, and RegulationBegrlas, E., 1976, On the theory or ClubsHahn, R., & Wallsten, S. (2006). The economics of net neutrality. Economists’ Voice, 3(6), 1–7.

Thank you