Bharti Centre for Communication

We analyze the effect of sponsored data when Internet service providers (ISPs) compete for subscribers and content providers (CPs) compete for a share of the bandwidth usage by customers. Our model is of a full information, leader-follower game. ISPs lead and set sponsorship prices. CPs then make the binary decision of sponsoring or not sponsoring their content on the ISPs. Lastly, based on both of these, users make a two-part decision-choose the ISP to subscribe to, and amount of data to consume from each CPs through the chosen ISP. User consumption is determined by a utility maximization framework, sponsorship decision is determined by a non-cooperative game between CPs, and ISPs set their prices to maximize their profit in response to prices set by competing ISP. We analyze the dynamics of the prices set by ISPs, the sponsorship decisions of CPs, the market structure therein, and surpluses of the ISPs, CPs, users. This is the first analysis of the effect sponsored data in the presence of ISP competition. We show that inter-ISP competition does not inhibit ISPs from extracting a significant fraction of CP surplus, leaving CPs no better off (and sometimes worse off) as compared to the scenario where data sponsoring is disallowed. Moreover, ISPs often have an incentive to significantly skew the CP marketplace in favor of the most profitable CP.

The Internet of symmetric traffic flows between networks and a hierarchical topology, has long given way to one with significantly asymmetric traffic flows and a flatter topology. The Internet topology of today may be characterized as having three key types of networks—content providers, user access providers, and transit providers. In this Internet, best-effort routing of centrally stored content using distributed protocols has been seen to be inadequate to provide a suitably reliable transport service with the requisite quality of service to the end user. Two important developments that mitigate this gap in the capability of the traditional Internet and the needs of modern content are (i) direct peering arrangements between content networks and ISPs, and (ii) widespread use of content distribution networks (CDNs), who also peer with ISPs. In this paper we first analyze the economics of such peering arrangements. Using microeconomic models from the industrial organization literature, we first develop the conditions for a content provider to connect directly to a service provider, possibly via a peering link. Further, when such a direct link is indeed sought, we analyze the quality of the link vis-a-vis the default option of using a transit service. We then extend our results to the case of CDN, and analyze the content provider market coverage by CDNs. Finally, we discuss the implications of these results on the objectives sought by net neutrality regimes.