Testing the economics of the net neutrality debate

This paper examines the impacts of net neutrality rule changes in the United States in 2010, 2015, and 2017 on telecommunication industry investment levels. The paper tackles the issue with a comprehensive dataset with full time series coverage for all SEC-registered telecommunications firms from 2009 to 2018. The author tracks new capital expenditures incurred, which reflects new investment decisions made rather than old investment decisions materialized, with quarterly data and exact issuance dates. The paper uses a standard difference-in-difference model and a variety of robustness checks to examine causal impact effects of net neutrality rule changes. The paper finds net neutrality rule changes in the United States had no impact on telecommunication industry investment levels based on the data, outcome variable, and limiting assumptions used. This empirical question featured heavily as the key economic question in the 2015 Open Internet Order issuance and 2017 repeal process. However, research has failed to adequately address the question due to a short timeframe for research and methodological issues. The paper offers the only analysis with a full dataset and a sufficient time period of observation to properly examine effects. As such, it offers an incremental step forward in research assessing network neutrality empirically.     

Net neutrality: A progress report

This paper is intended as an introduction to the debate on net neutrality and as a progress report on the growing body of academic literature on this issue. Different non-net neutrality scenarios are discussed and structured along the two dimensions of network and pricing regime. With this approach, the consensus on the benefits of a deviation from the status quo as well as the concerns that are unique to certain non-net neutrality scenarios can be identified. Moreover, a framework for policy decisions is derived and it is discussed how the concept of neutrality extends to other parts of the Internet ecosystem.     

Public value mapping of network neutrality: Public values and net neutrality in Korea

Network neutrality (NN) is of broad and current interest despite its complex and multifaceted nature. This study examines NN in the Korean context in terms of policy, industry, values, and society. It addresses the policy effectiveness of ongoing NN discussions by analyzing user attitudes and perceptions. The proposed model empirically tests policy effectiveness through user perceptions by incorporating factors representative of NN. Possible NN factors are derived from the previous literature and perceptions of NN concepts. The results find that regulation and competition are two primary factors constituting network neutrality, and these factors differently influence the formation of attitudes toward policy effectiveness. Political and social implications are discussed based on the proposed model. This study provides comprehensive analysis and heuristic data on user drivers, industry dynamics, and policy implications in the NN ecosystem.     

Network neutrality and difference in efficiency among Internet application service providers: A meta-frontier analysis

As Internet applications evolve and require wider and more stable bandwidth, Internet service providers (ISPs) try to maximize their profit by controlling application service providers (ASPs); this has caused a network neutrality debate. This article categorizes ASPs into four groups by bandwidth-usage attributes and latency sensitivity. By estimating the efficiency of these groups, their efficiency differences are estimated, indicating evidence of discrimination of ISPs when network neutrality is not maintained. Meta-frontier analysis is used to compare efficiencies across companies using different production function technologies. Finally, a Tobit regression model is used to determine which variables explain the difference of efficiencies. The estimation result indicates that the discrimination of ISPs against ASPs is not significant enough to decrease the efficiency of any application group.     

Net neutrality and market power: The case of South Africa

Net neutrality rules have been implemented in many developed countries, often in response to concerns over network operator market power and potential blocking or throttling of content. However, developing countries typically have significantly lower levels of internet penetration and usage. Market power in respect of internet access looks quite different given that mobile is the predominant means of connection and there are often three or more mobile operators. In South Africa, there is a quasi-monopoly in the paid satellite broadcasting market and broadband providers zero-rating content from third parties (such as Netflix) may bring about more competition. We test the main theories of harm arising in the net neutrality debate, including network operator market power and exclusion among content providers using data on the number of announced prefixes and peers and IP addresses and considering examples of bundling and zero-rating conduct by operators. We find that net neutrality rules are less likely to be required in South Africa and other developing countries and that strict enforcement of such rules could in fact hinder competition in markets for content, telecommunications networks and other related markets.     

Multihoming, content delivery networks, and the market for Internet connectivity

Peering points between different Internet service providers (ISPs) are among the bottlenecks of the Internet. Multihoming (MH) and content delivery networks (CDNs) are two technical solutions to bypass peering points and to improve the quality of data delivery. So far, however, there is no research that analyzes the economic effects of MH and CDNs on the market for Internet connectivity. This paper develops a static market model with locked-in end users and paid content. It shows that MH and CDNs create the possibility for terminating ISPs to engage in monopolistic pricing towards content providers, leading to a shift of rents from end users and content providers to ISPs. Implications for future innovations are discussed.     

A comparative analysis of net neutrality: Insights gained by juxtaposing the U.S. and Korea

This study compares and contrasts the U.S. and Korea in the context of network neutrality, focusing on debates among stakeholders and regulatory approaches. Similarities and differences are highlighted by comparisons within the broadband ecosystem framework: government functions, histories, people׳s perceptions, regulatory approaches, legislative initiatives, and implementation. In Korea, a regulatory framework with suggested guidelines exists, and it can be used to address net neutrality in a case-by-case fashion. The U.S. follows a regulatory approach by creating enforceable non-discrimination rules. The findings in this study suggest that the issue is not only complicated because it is embedded contextually, but also because the respective parties׳ diverse interests are multifaceted and vague. It is concluded, therefore, that a coherent and consistent approach is an effective way to govern neutrality.     

Product innovation and adoption in market equilibrium: The case of digital cameras

This paper studies the effect of competition on product innovation in the market for digital cameras during the years 1998 to 2001. The analysis is based on a structural dynamic model that is estimated and used to simulate the innovation behavior of firms in counterfactual environments. The model features heterogeneous consumers, who time optimally purchase goods, depending on the expected evolution of the prices and the characteristics of available cameras. On the supply side, firms introduce new camera models and choose their characteristics, accounting for the dynamic value of new products and the optimal dynamic behavior of consumers. The counterfactual simulations imply that an increase in competition in the industry would not have generated better products on average and, depending on the type of competition, would have generated products with lower average quality.     

Mobile service innovation: A European failure

The continuing absence of innovation in Europe’s mobile services industry is identified and characterised here, with such examples as mobile Internet and mobile music. Innovation failure is a critical factor leading to a lack of high-income jobs, network effects, and price reductions for data services. Most mobile service innovations have been made in Japan in ‘clubs of operators’ with their suppliers. Apple USA followed the same model of control with its iPhone. Conversely, a lack of this critical type of competition characterises European operators. Revenues per citizen are in some countries similar to those in Japan, but with handsets with less functions. Europe and all other regions face the challenge of competing with Japanese and US innovators. The lessons to be learned are (1) becoming aware of the situation, (2) allocating spectrum that covers a sufficient population size to allow technological competition, and (3) developing a strong customer orientation.     

Investigating the intertwining impact of wholesale access pricing and the commitment to net neutrality principle on European next-generation access networks private investment plans: An options-game application for capturing market players' competitive interactions

Whilst the deployment of next generation access networks (NGANs) is undoubtedly beneficial to the economy, new legal developments in the United States (US) regarding the issue of net neutrality (NN) pose a new challenge not only to policy makers but to telecommunication providers as well, that could justify a fresh approach when assessing NGANs investments. In particular, the Federal Communications Commission (FCC) subverted extant NN rules in the US and if the European Union (EU) decides to follow a similar deregulatory path in the future it could change the way telecommunications providers on both sides of the Atlantic lay down their optical-fibre network infrastructure investment plans. For instance, if traffic prioritization is allowed then diversification of revenue sources can be achieved by charging customers for privileged data delivery to their premises. Currently, NGANs roll-out throughout EU is an ongoing process in a setting whereby access regulation in the form of network element unbundling is already imposed. As a result, these legal developments form a new context within which it makes sense to assess the role of NGANs wholesale access pricing in tandem with the degree of commitment to NN rules so as to i) determine their combinatorial impact on private telecommunications operators' financial figures and ii) capture their competitive interactions. Towards this end, an important aspect of particular value to market players (i.e. incumbents and competitive providers – CPs), and policy makers (i.e. National Regulatory Authorities – NRAs) that this article aims to examine is how to employ the option-game (OG) analysis, that reflects the intersection of game theory (GT) and real options (ROs), to model the competitive interactions between participants in a particular competition game set-up by means of deriving possible Nash-equilibrium (NE) outcomes within a regulatory setting part of which is the commitment or non-commitment to the NN principle. This, hybrid, evaluation tool is applied on top of a conventional discounted cash flow (DCF) techno-economic analysis assessment of an NGAN investment opportunity.     

Divergent and convergent logic of firms: Barriers and enablers for development and commercialization of innovations

This paper describes and discusses similarities and differences in the priorities, interests, and interactional goals of companies involved in the development and commercialization of innovation. We refer to such priorities, interests, and interactional goals as the logic of firms, and point to how differences among companies in these regards may enable or inhibit the development and commercialization of innovation. A case study in drug development, from a Taiwanese biopharmaceutical, illustrates two types of innovations: generic and novel drug development. Findings suggest how logic places focus on how certain actors may be more motivated toward innovation, but also on how the logic portrayed by actors can promote certain types of innovations (in this case generic ones), while inhibiting others (novel innovations). The paper concludes that companies need to have convergent logic (i.e. have the same priorities and similar or complementary interests and interaction goals) if an innovation process is to be successful. The focus on priorities, interests, and interactional goals of companies in innovation processes complements previous research that has primarily focused on the actual interaction, not what motivates it. The construct of shared logic nets as a means of analyzing convergent logic and gaps between different types of logic help to understand enablers and barriers to innovation.     

Social and organizational capital: Building the context for innovation

In the light of the key role intellectual capital has for firms' innovation capability, this paper analyzes the influence of two of their dimensions, organizational capital and social capital, on firms' product innovation, and the moderating role of radicalness. Unlike previous studies, the unit of analysis will not be the firm, but the R&D department. Thus, our research, conducted with a sample of Spanish industrial companies, provides a new insight with interesting results. First, our findings show that social capital favours firms' product innovation, especially under radical innovations. Second, organizational capital has an indirect effect on product innovation through positive influence on social capital. This implies that firms can stimulate communication and interaction among people, and therefore innovative activity, by means of explicit and codified knowledge (organizational capital).     

Non-discrimination rules for ISPs and vertical integration: Lessons from cable television

The experience of cable television indicates that vertically integrated ISPs have plausible incentives to favor their affiliated content and to restrict entry of nascent rival content services, but these incentives are weakened in some respects, and strengthened in others, by differences in the economic architectures of cable and Internet broadband. Non-discrimination regulations designed to control such behavior are potentially more effective than in cable, but rules governing discrimination both in the upstream access and the downstream retail markets (as the FCC's no-unreasonable-discrimination rule appears to do) are likely to be necessary for effectiveness. Beneficial effects of vertical integration on financing and entry of cable programming networks should also apply to Internet video content development, but emergence since the 1970s of a robust programming supply industry with few vertical ties to cable suggests that such benefits will be less significant in the ISP case. Finally, the history of both the cable and ISP industries makes evident that the fundamental policy concern should not be vertical integration but horizontal market shares of ISPs, both at the local and national levels.     

Platforms,systems competition,and innovation: Reassessing the foundations of communications policy

Focusing on the effects of policy on investment and innovation this paper examines whether the conceptual foundations of sector regulation are aligned with the current technological and economic conditions of advanced communications. One conclusion is that the prevailing theories and practices are only adequate if the policy challenge can be reasonably approximated as a static or steady-state problem but they may have serious shortcomings if this is not possible. The article proceeds with a review and critical examination of two approaches that could augment or possibly replace the traditional approach under conditions of dynamic competition—the theory of platform markets and systems approaches. Both frameworks model aspects of competition in interconnected systems in more detail and offer novel insights to inform communications policy in an era of continuous change. Nonetheless, important theoretical and implementation gaps remain that will require additional efforts by researchers and practitioners.     

From developmental to network state: Government restructuring and ICT-led innovation in Korea

This study examines the government leadership and strategic restructuring that guided The Republic of Korea's remarkable ICT-led development from 1980 to the present. That time span coincided with tumultuous political, social and economic transformation inside Korea including the growth of such powerful chaebol industry groups as Samsung, LG and SK. Globally, the period covered by this study featured the growth of new and more powerful digital networks epitomized by the internet. It also marked South Korea's transition from a development to a network state, allowing assessment of what the experience implies for developmental state theory.     

Pirates and Samaritans: A decade of measurements on peer production and their implications for net neutrality and copyright

This study traces the evolution of commons-based peer production by a measurement-based analysis of case studies and discusses the impact of peer production on net neutrality and copyright law. The measurements include websites such as suprnova.org, youtube.com, and facebook.com, and the Peer-to-Peer (P2P) systems Kazaa, Bittorrent, and Tribler. The measurements show the two sides of peer production, the pirate side with free availability of Hollywood movies on these P2P systems and the Samaritan side exhibited by the quick joining of 400,000+ people in a community to organize protests against events in Burma. The telecommunications and content industry are disrupted by this way of peer production. As a consequence, revenues of both industries are likely to suffer in the coming years. On the other hand, innovative P2P systems could win the battle on merit over classical distribution technologies. As a result, a continuation is expected of both legal actions against P2P and possible blocking actions of P2P traffic, violating net neutrality. It is argued that this hinders innovation and causes a large discrepancy between legal and user perspectives. A reform of copyright laws is clearly needed, otherwise they will be unenforceable around 2010.     

Vertical integration,innovation, and alliance portfolio size: Implications for firm performance

We examine the consequences of alliance portfolio configuration by focusing on contingencies that affect the impact of alliance portfolio size on innovation and financial performance. While increasing alliance portfolio size is expected to positively impact innovation and financial performance, we propose that, at high levels of innovation of the focal firm, increasing alliance portfolio size dampens financial performance. We also propose that firm boundaries moderate the impact of alliance portfolio size on innovation and financial performance differently. Specifically, vertically integrated firms benefit less (more) than their vertically specialized counterparts in leveraging higher innovation (financial) performance with increasing alliance portfolio size. Our analysis suggests that both vertical scope and innovation levels of the firm play an important role in understanding how alliance portfolios impact performance. Copyright © 2013 John Wiley & Sons, Ltd.     

On Retail Gasoline Pricing Websites: Potential Sample Selection Biases and Their Implications for Empirical Research

Station-specific retail gasoline prices are publicly available on websites such as GasBuddy.com, but the potential sample selection biases that might exist in these data have not previously been examined. To this end, two sets of prices were compiled for 27 stations in Guelph, Ontario, in late 2005: an unbalanced panel collected every 12 h from OntarioGasPrices.com, and a balanced panel collected eight times per day by direct observation. It appears that “Internet data” can be reliable for answering questions that require daily, company-operated, major brand station prices, but not if one needs very high frequency data or prices for certain types of independent stations.      

The healthcare network economy: The role of Internet information transfer and implications for pricing

Over the past several decades, in an effort to increase quality and efficiency, more emphasis has been placed on preventive medicine, active participation of consumers in their healthcare, and healthcare networks that collaboratively provide medical care. This article addresses how the Internet has facilitated the development of new communication flows between networked stakeholders and the impact information transparency has on the demand for and the delivery of healthcare. Using actual patient treatment data, interviews with practitioners, and consumer interaction on Internet message boards, we discuss how increased information transfer shapes healthcare coverage and treatment options and the managerial implications for healthcare pricing along the value chain.     

Making sense of a market information system for superior performance: The roles of organizational responsiveness and innovation strategy

This article conceptualizes the relationships among strategic resources, strategic actions, and consequent performance by incorporating the strategic sense-making perspective into the resource-based view. Specifically, the study suggests that the firm can use both market-driven strategic actions such as organizational responsiveness and market-driving strategic actions such as innovation strategy to make sense of strategic resources such as a market information system. The firm can then translate the strategic resources into a competitive marketing advantage, which leads in turn to superior financial performance. The study tests this framework by surveying 180 manufacturing firms in China. The empirical results support the theoretical framework.