Fourth Brown Bag of the Semester – February 27, 2015

Julien Mailland, Department of Telecommunications, Media School

From two-sided pricing to gated communities: Welcome back to the eighties

In recent years, a number of internet service providers around the world have attempted to implement two-sided pricing models within the networks.  Under such models, ISPs would charge both the end-users for access to content of their choice, but also the content providers at stake for access to the end-users.  Content providers who would not pay would see their content either blocked by the last-mile ISP, or relegated to a slow lane called a “dirt road.”

So far, the economic and legal literature have focused on the negative implications of such models from the standpoint of innovation.  This talk takes a different perspective and argues that implementation of two-sided pricing models by retail, last-mile ISPs would lead to fragmentation of the Internet and the creation of gated communities at the level of each last-mile ISP implementing such model.  That situation would be reminiscent of the online landscape of the eighties, where users got on AOL, Compuserve, Prestel or Minitel, rather than on an interconnected network of networks.  I further argue that this is an undesirable outcome for two reasons.  First, such balkanization of the Internet would prevent users from reaping the benefits of network externalities that emerged when the Web drew people to the Internet.  Second, it would reduce the amount of information available to each user, which is a negative from the standpoint of the American political and international-relations theories of the marketplace of ideas and the free flow of information, both of which historically underpinned the development of the open, interconnected internet.

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