Efficiency and effectiveness of net neutrality rules in the mobile sector: Relevant developments and state of the empirical literature

The net neutrality debate, spanning about two decades, has recently undergone revisions in the EU and the UK and encountered divergent policies in the US. These rules significantly influence market power in the ICT ecosystem, shaped by fundamental changes effected by the embrace of sector-specific regulation in the EU and the origin of the net neutrality debate in the US in the early 2000s. Notably, empirical research on the economic impact of net neutrality rules is limited despite the fact that it represents a substantial ex-ante market intervention with uncertain effects towards main market actors. Focusing on the mobile sector, we examine the effectiveness of net neutrality rules in light of key technological and regulatory developments and the efficiency of net neutrality rules in light of the empirical literature. The available empirical literature inidcates that net neutrality regulation is likely to be inefficient, implying negative welfare effects, even more so when the total regulatory costs are taken into account. In contrast, no empirical study supports the arguments of proponents. Moreover, we find that net neutrality policies imposed on only one segment of the Internet value chain have become increasingly ineffective and that EU-style net neutrality regulations will lead to substantial market uncertainties regarding 5G-based services and applications. In terms of efficiency and effectiveness, the “first best” policy recommendation would be to remove obvious over-regulation that impedes investment, such as net neutrality rules. The “second best” policy recommendation in terms of actual political feasibility is that providers of broadband Internet access services should be given more options for pricing and quality design, subject to established ex-post competition law as well as existing sectoral transparency and end-user protections. Alternatively, regulators could consider a principles-based framework subject to a limited scope of ex-ante obligations.