Internet access and use

Transcription

1 Internet access and use Christian Helmers 21 April / 23

2 Internet access and use Most digital technologies rely on access to the Internet Who has access? How has access to the Internet changed economic behavior? What determines internet access? The debate on net neutrality 2 / 23

3 Internet access and speed 3 / 23

4 This average is deceptively low in part not just because it does not include time spent doing Growing , watching demand videos, gaming, for internet but also because services it is calculated across the entire population so is not representative of people who spend any time online. Figure 5 shows that the average is low primarily because a fairly small share of the population reports spending any leisure time How online much (other time than doing Americans and playing spendgames). on the However, internet the figure shows that the share of the population who spend non-gaming and non- leisure time online is increasing, and, on average, Onpeople average who 90spend minutes any leisure time online spend about 100 minutes a day nearly onethird of their total daily leisure time. Share of online users for leisure steadily increasing Figure 5: Share of Population Using Computer for Leisure and Average Number of Minutes per Day Among Those Who Used a Computer For Leisure Minutes Minutes (left axis) Share reporting time spent on PC for leisure (right axis) 15% 14% 13% 12% 11% 10% 9% 8% 7% Share of respondents Who Engages in Online Leisure? Source: Wallsten (2014) Online leisure time differs across many demographics, including age and income. As most would 4 / 23

5 What people do online Source: Wallsten (2014) 5 / 23

6 Consumer surplus from internet phone calls since phone calls are specifically time spent talking on the telephone. 20 If people Valuewho ofare Internet: inclined to Does talk on the phone internet are also crowd inclined out to Skype, other then activities? perhaps the correlation If not, is then picking up like-minded people. purely economic transfer Figure 11: Estimated Crowdout Effects of Online Leisure on Major Categories 0.15 Crowdout Effect Leisure (excluding computer) Work Personal care (including sleep) Travel Household activities Education Helping household members Eating and Drinking Helping non-household members Religion Unknown Volunteering Professional care and services Household services Government and civic obligations Consumer purchase Phone calls Total Source: Wallsten (2014) The analysis above controls for demographics, but any crowd-out (or -in) effects may differ by those demographics, as well. Table 5 shows the abridged regression results by demographic 6 / 23

7 Consumer surplus from internet Value of Internet: Does the internet crowd out other activities? 1 minute online time 0.29 minutes of other leisure phone calls since phone calls are specifically time spent talking on the telephone. 20 If people who are inclined to talk on the phone are also inclined to Skype, then perhaps the correlation is 1 minute online timepicking up 0.27 like-minded minutes people. of work Figure 11: Estimated Crowdout Effects of Online Leisure on Major Categories 0.15 Crowdout Effect Leisure (excluding computer) Work Personal care (including sleep) Travel Household activities Education Helping household members Eating and Drinking Helping non-household members Religion Unknown Volunteering Professional care and services Household services Government and civic obligations Consumer purchase Phone calls Total Source: Wallsten (2014) The analysis above controls for demographics, but any crowd-out (or -in) effects may differ by those demographics, as well. Table 5 shows the abridged regression results by demographic 7 / 23

8 Net neutrality Structure of the Internet Content providers (Google, Amazon etc.) Infrastructure/network providers (Level3, AT&T, CenturyLink, etc.) Broadband service providers (AT&T, Verizon, Comcast) End-users Broadband service is a two-sided market Need content providers to attract subscribers and need subscribers to attract content 2 challenges 1 How to set prices (to cover fixed costs) 2 Network effects 8 / 23

9 Net neutrality an ideological debate Net neutrality has been built into the fabric of the Internet since its creation but it is also a principle that we cannot take for granted. We cannot allow Internet service providers (ISPs) to restrict the best access or to pick winners and losers in the online marketplace for services and ideas. (President Obama) There is one important technical legal difference of opinion between the President and Comcast: we do not support reclassification of broadband as a telecommunications service under Title II. Doing so would harm future innovation and investment in broadband and is not necessary to put in place strong and enforceable Open Internet protections. (Comcast) 9 / 23

10 Net neutrality Source: Cloudflare, / 23

11 Internet access and speed Source: FCC, / 23

12 Net neutrality 12 / 23

13 Net neutrality the debate Push by Internet service providers (e.g. AT&T, Verizon, Comcast) to abandon net neutrality Service providers want to charge content providers (e.g. Google) and provide fast lanes (and hence slower lanes) Content providers (e.g. Microsoft, Google, Amazon) want to maintain net neutrality Debate about pricing of internet services (price discrimination) How to provide incentives for internet service providers to invest in networks Fear of monopoly power in market for internet services Could influence end users choice of content provider Could influence incentives for content providers to offer new (types of) services 13 / 23

14 Net neutrality the decision In February 2015 FCC adopts Open Internet rules: No Blocking: broadband providers may not block access to legal content, applications, services, or non-harmful devices. No Throttling: broadband providers may not impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices. No Paid Prioritization: broadband providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kindin other words, no fast lanes. This rule also bans ISPs from prioritizing content and services of their affiliates. Reclassification of broadband internet as utility under Title II of the Communications Act of / 23

15 A simple model (Gans, 2014) Set-up 1 internet service provider (ISP) 2 content providers (CP 1 and CP 2 ) 1 consumer Assumptions CPs generate value for consumer where v 1 > v 2 CPs earn other revenue (e.g. advertising) r i (where i = 1, 2), such that total revenue is v 1 + r 1 > v 2 + r 2 Consumer chooses only 1 CP ISP incurs cost c to provide CP s content to consumer 15 / 23

16 A simple model (Gans, 2014) Definitions ISP charges consumer price contingent on CP chosen (t 1, t 2 ) ISP charges CPs transit price (a 1, a 2 ) CP charge consumer (p 1, p 2 ) Net Neutraility (NN) No regulation: ISP free to set (t 1, t 2 ) and (a 1, a 2 ) Weak CP NN: ISP forced to set a 1 = a 2 = a Weak consumer NN: ISP forced to set t 1 = t 2 = t Strong NN: ISP forced to set t 1 = t 2 = t and a 1 = a 2 = a 16 / 23

17 Results (Gans, 2014) 1 No regulation: CP sets price t i + a i = v i + r i (i = 1, 2,) Consumer chooses CP 1 (socially optimal) CP earns zero surplus Consumer earns zero surplus ISP earns v 1 + r 1 c 2 Weak CP/consumer NN: ISP forced to set a 1 = a 2 = a CP sets price t i + a i = v i + r i (i = 1, 2,) Consumer chooses CP 1 (socially optimal) CP earns zero surplus Consumer earns zero surplus ISP earns v 1 + r 1 c But prices difference relative to no regulation 17 / 23

18 Results (Gans, 2014) 1 Strong NN: Consumer chooses CP 1 (socially optimal) CP earns v i + r 1 (v 2 + r 2 ) Consumer earns zero surplus ISP earns v 2 + r 2 c Overall surplus does not change, but surplus shifted between ISP and CSP ISP earns less, CP earns more than under no regulation or weak CP/consumer NN 18 / 23

19 Extension (Gans, 2014) What happens when a price is missing? Assume p 1 = p 2 = 0 Consumer chooses CP 1 if v 1 t 1 v 2 t 2 2 cases 1 v 1 v 2 : consumer chooses CP 1 and ISP earns v 1 + r 1 c 2 v 1 < v 2 : under weak consumer or strong NN, consumer chooses CP 2, ISP earns v 2 + r 2 c 19 / 23

20 Dynamics (Gans, 2014) Incentives to invest for CPs CP only earns v i + r 1 (v 2 + r 2 ) under strong NN More complex if missing price Incentives to invest for ISP Sunk costs C > 0 If undertaken, generate consumer value where > C No regulation: ISP earns v r 1 c C Strong NN: ISP earns v r 2 c C No change in incentives to invest (missing price irrelevant) 20 / 23

21 Implication (Gans, 2014) Fast lane Changes to the model: ISP offers fast lane to CPs for A and slow lane for a ISP incurs cost C for providing fast lane If CP i chooses fast lane, value to consumer is i greater than if slow lane chosen (with 1 > 2 ) Results: Weak CP/consumer NN: consumer chooses CP 1 and CP 1 chooses a fast lane, ISP earns entire surplus v r 1 C Strong NN: consumer chooses CP 1 and CP 1 chooses a fast lane, ISP earns v r 2 C and CP 1 earns v 1 + r 1 (v 2 + r 2 ) 21 / 23

22 What have we learnt? Internet has become accessible almost everywhere Different uses Net neutrality Only strong NN has real effects Effect on allocation of profits between ISP and CPs No effect on consumer behavior (provided CP can charge consumer directly) Improves dynamic efficiency in terms of CP investment No effect on ISP investment Even with fast lanes, CPs may obtain positive surplus Other issues: Spectrum availability Tight regulation of broadband services 22 / 23

23 References Federal Communication Commission (FCC) (2013). Internet Access Services: Status as of December 31, 2013, available under http : //transition.fcc.gov/daily R eleases/daily B usiness/2014/db1016/doc A1.pdf Gans J.S. (2014). Weak vs Strong Net Neutrality, NBER WP Wallsten S. (2014). What are we not doing when we re online?, mimeo. 23 / 23