A number of colleagues and I recently completed work on a large grant proposal, and as is typical with grant proposals and research more broadly, a lot of worthwhile research that went in did not survive the final cut. In this case, one of the core sources of data that motivated the identification strategy used in our proposal stemmed from Internet Service Provider (ISP) data on Internet and video subscribers. Tables 1 and 2 below, which we did not ultimately submit, display this data for residential and non-enterprise business customers of major publically traded local exchange carriers (LECs) and cable companies for respectively, Internet and video subscriptions.
Table 1: Internet Subscribers for Major Public ISPs
|Local Exchange Carrier ISPs|
Notes: All subscriber numbers in thousands. Data obtained from 2010-2015 SEC Annual Reports (10-K) for each firm.
Table 2: Video Subscribers for Major Public ISPs
|Local Exchange Carrier ISPs|
Notes: All subscriber numbers in thousands. For LEC ISPs, subscriber numbers generally do not include affiliated video subscription to satellite video programming. Data obtained from 2010-2015 SEC Annual Reports (10-K) for each firm.
Casual observation of Table 1 shows that the number of Internet subscribers has continued to grow between 2010 and 2015 for most ISPs, whether cable or LEC. In contrast, casual observation of Table 2 shows that the number of video subscribers has declined for most cable companies, but grown for most LECs over this time-frame, though LEC video subscribership remained substantially below that of the cable companies.
The general trend in Table 1 will not be surprising to Internet researchers or people who have not been living under a rock. The Internet has been kind of a big deal the last few years. For example, it has fostered business innovation (Brynjolfsson and Saunders 2010; Cusumano and Goeldi 2013; Evans and Schmalensee 2016; Parker, Van Alstyne, and Choudary 2016), economic growth (Czernich et al. 2011; Greenstein and McDevitt 2009, Kolko 2012), my ability to blog, and your ability to consume the items in the hyperlinks above.
The trends in Table 2 are less well known outside the world of Internet research and business practice and are at least in part attributable to historical developments involving the Internet. As described by Greg Rosston (2009), LECs initially got into the business of high-speed broadband to improve upon their previously offered dial-up Internet services—they were not initially in the multichannel video programming distribution (MVPD) market. In contrast, the cable companies became ISPs after it became apparent that coaxial cables used to transmit cable television signals could also be used for high-speed broadband.
Thus, whereas cable companies could use their networks to offer subscribers video and Internet bundles, many LECs have had to partner with satellite video programming distributors or resell competitors’ services to be able to advertise a bundled service. Eventually, some LECs acquired their own video customers either through purchases of smaller cable competitors in certain areas, or by relying on Internet Protocol television (IPTV), either through construction of fiber networks that deliver service to the home as was the case with Verizon or by doing whatever it is that AT&T does. This has explained the growth of LEC video customers, whereas competition from LECs, video on demand, and mobile wireless service providers should at least partly explain the decline in cable video subscribership.
To put these trends into perspective, I have included one additional Table (Table 3), which displays the ratios of video to Internet subscribers for the ISPs above. As the Table makes evident, the ratios have declined for most cable companies and increased for most LECs between 2010 and 2015. If I had to make an educated guess, the cable company trend will continue in the coming years, but I am less certain that the trend on the LEC side is sustainable as video on demand and mobile wireless continue to eat into the traditional video market.
Table 3: Ratio of Video to Internet Subscribers for Major Public ISPs
|Local Exchange Carrier ISPs|
Notes: Ratios represent the fraction of residential and non-enterprise business customers who subscribe to a video service relative to those who subscribe to high-speed Internet. For LEC ISPs, ratios generally do not include affiliated video subscription to satellite video programming.
If you want to reuse or make fancy graphs out of the data located in this post, please attribute the data to Aleksandr Yankelevich, Quello Center, Michigan State University.
Whether you are new to net neutrality and want to better understand the concept or a seasoned researcher who wants an update regarding open questions, I encourage you to read a recent working paper entitled, “Net Neutrality: A Fast Lane to Understanding the Trade-Offs,” by Shane Greenstein, Martin Peitz, and Tommaso Valletti, a group of economists with a track record researching and writing about Internet economics. Although the article is rather recent, I believe it presents a very good starting point for those interested in taking a deeper dive into both specific theoretical and general empirical issues revolving net neutrality.
In this blog post, I attempt to outline the article for perspective readers and provide a few potentially useful links. Although I abstract completely from the math and intuition behind the results, the article is extremely straightforward with this regard.
A good starting point for a discussion of net neutrality begins with an understanding of the uses of the Internet. As the authors see it, there are four relevant categories of use for the Internet:
Although much economic research tends to abstract from the technical issues revolving use of the Internet, many studies of net neutrality implicitly model the third variant above and the authors follow suit. This makes up the bulk of modern Internet traffic: for instance, together, Netflix, Youtube, and Amazon Prime have consistently made up approximately 50 percent of all North American Internet traffic as of late.
There are three common arrangements for moving data from content providers to users:
The authors focus on two definitions of net neutrality: (1) prohibition of payment from content providers to Internet service providers (referred to as one-sided pricing whereby ISPs can only charge consumers) and (2) prohibition of prioritization of traffic with or without compensation. As Johannes Bauer and Jonathan Obar point out, these are not the only alternatives for governing the Internet (see Bauer and Obar 2014). In a simple world with no competition and homogeneous users, the authors suggest that net neutrality does not affect profits or consumer surplus. A number of real world considerations are taken into account, and the potential ramification of imposing net neutrality are suggested as follows.
The authors caution against broad policy prescriptions, and rightly so, given the present ambiguity surrounding the impacts of net neutrality. Along the way, the authors inspire a number of open empirical questions that might help policy makers.
I suspect that the first two questions are fairly difficult to answer from an economics perspective because in large part they depend on significant insider knowledge about contracting among market participants. The Quello staff and I are presently contemplating how to rigorously answer questions (3) and (4). We are very interested in your feedback.