Differential pricing of traffic in the Internet

The ongoing net neutrality debate has generated a lot of heated discussions on whether or not monetary interactions should be regulated between content and access providers. Among the several topics discussed, ‘differential pricing’ has recently received attention due to ‘zero-rating’ platforms proposed by some service providers. In the differential pricing scheme, Internet Service Providers (ISPs) can exempt data traffic charges for accessing content from certain Content Providers (CPs) or applications (zero-rated) and apply regular charges for accessing content from other CPs. This allows the possibility for CPs to make ‘sponsorship’ agreements to zero-rate their content and attract more user traffic. In this paper, we study the effect of differential pricing on various players in the Internet. We consider a model with a single ISP and multiple CPs where users select CPs based on the quality of service (QoS) and applicable traffic charges. We show that in a differential pricing regime 1) a CP offering low QoS can make more revenues than a CP offering better QoS through sponsorships. 2) QoS (mean delay) for end users can degrade compared to the case where no differential pricing is allowed.