A recent study by Northwestern University Charles E. and Emma H. Morrison Professor of Market Economics William P. Rogerson provides an economic rationale for the benefits of free data services.
The 42-page paper outlines the economic impact of data caps and free data services, “practices [that] largely represent efficient carrier responses to competitive pressures, technical realities, and consumer preferences.” Rogerson argues such practices “should be trusted over the predictive judgements of regulators when it comes to maximizing consumer welfare.” He further contends that “proposals to ban or severely restrict the use of data caps or free data plans would essentially amount to the imposition of a form of price regulation on a well-functioning competitively vibrant industry, and would do more harm than good.”
Rogerson’s analysis sets forth three primary premises: (1) mobile broadband markets are highly competitive, (2) data caps provide consumer benefits and do not yield excessive corporate profits, and (3) free data services benefit subscribers and create no significant deterrents to competition.
Rogerson frames the current mobile landscape as one where most consumers have at least four options of wireless carrier, and fierce competition between varying service providers has resulted in the elimination of long term contracts. He also notes that today’s wireless providers offer greater pricing flexibility, and a “price and non-price rivalry” has ensued between mobile carriers big and small.
In this robust landscape, Rogerson posits that attempts to influence pricing and profit levels by indirectly regulating data caps is both unnecessary and inappropriate. He further argues that data caps help manage very scare spectrum resources and reduce network congestion. Rogerson’s data cap argument culminates by an explanation of how such caps help mitigate the expense of extreme data use, thereby reducing general consumer data costs – a benefit particularly felt by low-income and price sensitive mobile users.
Having established the foundation of what the current mobile ecosystem looks like, Rogerson says free data services ultimately enable greater consumer choice because people have more data to play with each month. He also contends that such arrangements serve as powerful direct and indirect incentives for content providers to better manage the data required by their product offerings. The analysis concludes with an affirmation that free data services do not run afoul of net neutrality concerns, and that any such concern is greatly reduced in the current competitive mobile ecosystem.
Lauding Federal Communications Commission Chairman Tom Wheeler for thus far taking a case-by-case approach to evaluating data caps and free data programs, Rogerson says that regulating these practices, “rather than protecting competition and innovation…would directly impede competition and innovation by limiting firms’ abilities and opportunities to compete with one another and innovate in terms of pricing structures and service offerings.”