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Net Neutrality, Foreclosure and the Fast Lane An empirical study of the UK by Laura Nurski

This study by Laura Nurski, with discussion from Glenn Woroch, builds a consumer demand model for broadband and content consumption in the UK. It explores threats to net neutrality in video content and provides insights into ISP selection and content choice behavior. The study presents simulation scenarios involving fast and slow lanes for services like YouTube and Catch-up TV, highlighting potential impacts on consumer surplus and ISP revenues.

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Net Neutrality, Foreclosure and the Fast Lane An empirical study of the UK by Laura Nurski

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  1. Net Neutrality, Foreclosure and the Fast LaneAn empirical study of the UKby Laura Nurski Discussion: Glenn Woroch

  2. Approach • Builds structural model of consumer demand for broadband internet access and content consumption • Estimates using a cross section of UK nationwide consumer-level choice data • Simulates two threats to NN in video content • Finally, a reality check on all the NN modeling!

  3. Consumer choice problem ISP selection No broadband ISP10 ISP1 ISPj . . . . . . … Pkg1,n1 Pkg11 Pkgj1 … Pkgj,nj Content selection . . . 19 Ki 1 0 (Ci1 , Ci2 , . . ., CiKi)

  4. Choice model specification • ISP alternatives • Outside option is no internet + dialup internet • But also varies with cable/satellite TV subcription • No mobile broadband alternative • ISP-package-content combinations • Begs for nested logit • Would provide robustness test of IIA • Would identify differences in substitution across ISPs, packages, contents (e.g., BT vs. LLU vs. bitstream)

  5. Model specification (cont’d) • Content combinations • Outside option? • Single speed coefficient for all video? • Gentzkow specification • Γkl > (<) 0  contents k and l are complements (substitutes) • Extends to more than two options? • Where are correlations of errors?

  6. Model estimation • One-step estimation of two stage model • ISP subscription adjusts much slower than content choices • Should instrument for endogenous ISP prices

  7. Counterfactual: YouTube fast lane • Simulation assumptions • YouTube’s speed on BT increases 8↑20 mbps • All other ISP-package pairs are unchanged • Won’t bitstream providers also be faster? • Consumers adjust both ISP and content combo’s • Holds chosen number of contents fixed?  Net increase in YouTube ads, ISP revenues and consumer surplus

  8. Counterfactual: YouTube fast lane • Alternative scenarios • Increase in cost to BT of YouTube’s fast lane • YouTube might strike deals with other ISPs • Other video CPs could strike similar deals with BT

  9. Counterfactual: Catch-up TV slow lane • Simulation assumptions • Catch-up TV’s speed on BT falls 8↓2 mbps • Consumers substitute a bit of YouTube for much Catch-up TV  Net reduction in consumer surplus • Alternative scenarios • Substitution to Live TV or movie downloads (e.g., Netflix subscriptions) • BT vertically integrated into favored content …

  10. Another counterfactual • A slow lane for messaging • “IM, chat, voice calls” on BT slowed 8↓2 mbps • Substitution to BT fixed and mobile calling and texting, and away from Voip (e.g., Skype)

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