Page 71 - ITU Kaleidoscope 2016

ICTs for a Sustainable World

As in the monopoly situation, ISPs define termination fee t Under duopoly competition, the ISPs define termination
under substitution contracts at the same value as a unique ser- fee t above their marginal cost. Limited Internet service in
vice contract. ISPs do not make difference in the allocation duopoly has a positive impact on end users welfare. indeed
of termination fee t under the presence of different contracts. following theorem 2: the higher the marginal gains, the better
The contracts are treated separately under a price regulation the quality. With a reduction of t in relation to monopolistic
p z . ISPs, CPs will allow more content financed by themselves in
the limited Internet service. Users will access more content
without any extra cost.
4.2. Universal service Internet over an exclusivity ISP
An asymmetric situation could by presented when only one
5. CONCLUSION
ISP provides the limited Internet service. This scenario re-
flects the case where the policy is targeted to only one ISP. In
We presented what we believe is a possible alternative for
several cases, we see in the literature that universal service
universal service on broadband: a kind of alternative Inter-
obligation is provided by the incumbent or as part of a con-
net contract with a free or very small economic participation
tract specifications defined to a new player in a market. In
to access a limited version of the service. CP finance their
the same case, ISP that proposes the limited Internet service
participation to broadcast their high bandwidth content. We
take advantage of this situation in a monopoly position. In
focused our analysis on a scenario where a regulator decides
this scenario the market power of ISP is no lower than that
to impose a universal service as a limited version of the In-
of a monopolistic ISP, because it is the only provider of this
ternet service through a bandwidth limitation, financing the
contract. In fact, ISP may compete to obtain the exclusivity
Internet access by subsidies or a really small price from sub-
to offer the service by public bidding or paying the competi- scriber.
17
tors to do not provide this service .
The objective of this paper was to contribute to the litera-
ture with some public policies insights to be considered by
Exclusive ISP contracts to provide a limited Internet service
regulation authorities. We have developed a very simplified
induce a monopolistic behavior of ISP. The effect of Exclu-
model that may overlook some issues. First, we developed
sivity contracts have to be evaluated over a welfare compari-
a normative static approach, we described the market as it
son.
should be and not as it is. Second, the vertical integration
between ISPs and CPs was not included as an issue because
4.3. Welfare Analysis price under a universal service strategy is regulated and ex-
ante considered. Vertical integration becomes a dynamic
According to the legal definition of the universal service pol- evolution of data caps universal service strategy.
icy p z = c z the price of the subscription to this Internet ser-
vice will be defined as the net cost of delivering the limited
As mainly results we show:
Internet technology. The variation of costumers’ welfare in
this situation is highly positive because p z < p . The total • There is a positive effect to propose a Broadband uni-
social welfare is determined by versal service by quality as complement of Universal
Service obligation at least in terms of access due to the
z
SW monopoly = r · g [b] − c cp + ∆CW reduction of subscription price to a limited bandwidth
Internet service over the network.
Under a duopoly with a symmetric ISP behavior that pro-
vide a limited Internet service, termination fee is defined • Limited Internet service price has to be calculated and
as t 1 = t 2 = c b in a Nash equilibrium in termination fee fixed by regulations, taking into account the technical
∗
∗
prices (t , t ) and according to the universal service condi- components of the service and not the possible loss
2
1
tion p z = c z . The total social welfare is determined by of benefits or opportunity costs for Internet service
providers. ISP will try to defend or justify their po-
z
SW duopoly = r · g [b] − c cp + ∆CW sition in order to extract all possible benefit of this
policy.
Proposition 3 Duopoly scenario is welfare superior than
• Network neutrality policy has to be imposed to ISP
monopoly scenario. Indeed r · g [b] is a function of t
in terms of termination fee t over the different CPs.
because b = b [t]. With the lowest pricing of termina-
Indeed, if monopolistic ISP tries to discriminate CPs,
tion fee, the revenue level r · g [b [t]] will be higher on
ISP will try to reduce the gap between the optimal traf-
duopoly.
fic data volume pricing termination fee at the value of
SW z < SW z revenue level of CP.
monopoly duopoly
• Duopoly competition scenario is welfare superior than
Proof. See the Appendix.
monopoly scenario. Zero price rating Internet service
17 in duopoly competition has a positive impact on end
This kind of practices are allowed under a regulated market, at least not
under the presence of a regulator. users’ welfare.
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