Effects of Content Providers' Heterogeneity on Internet Service Providers' Zero-rating Choice

This study examines zero-rating (ZR), a commercial method implemented by Internet service providers (ISPs) that treat particular content providers' (CPs) data as free content. In this study, a model is constructed in which an end-user uses content from two CPs within a data cap, and the ISP chooses an optimal ZR plan which maximizes its profit. We show that the ISP zero-rates one or both CPs in equilibrium depending on (1) the ISP's marginal cost to deliver content, (2) the difference between the quality of the content provided by the two CPs, and (3) the two CPs' advertising power. We demonstrate that an increase in the ISP's marginal cost makes it more likely that a ZR plan resulting in heavy traffic will be implemented, and an increase in the difference between the content quality makes it less likely that a ZR plan in favor of the higher quality CP will be implemented