Does Zero Rating Cause Price Increases?

Correlation is not causation, in communications markets or anywhere else.

A study conducted recently by epicenter.works reports that, between 2015 and 2016, “in markets where zero-rating offers had existed in oth years, prices increased by two percent , whereas in markets with no zero-rating offers in both years, prices dropped by eight percent.”

Of course, methodology always matters. There is no practical way to compare prices across countries without picking some benchmark, whether that is the “lowest cost” retail price, the “average” price or some other common metric. So the report’s price changes refer only to changes in the lowest-priced tier, not all other tiers.

Also, such data only compares the tariffs; not the actual prices actually paid by most consumers, because consumption behavior is outside the analysis parameters. The point is that posted retail prices for specific products only matter if “most people” buy those products. Posted retail prices also matter to the degree that people actually pay those prices, and not some other promotional or bundled prices.

In markets where bundling is prevalent, it can be difficult to determine the actual price of internet access services.

Nor does the study consider price changes in markets that might be plausibly explained some other way. It is perhaps an intuitive assumption that zero-rating and differentially-priced offers are more attractive where data volume is expensive. If that is the case, then retail prices in such markets are almost, by definition, “more expensive” than markets where data costs are lower.

It is a bit of a tautology: zero rating is offered where data costs are high, and therefore we find that markets with zero rating have higher data costs. In other words, prices in Portugal, Spain or Germany are high, relative to France, Denmark or Sweden. It does not seem self evident that zero rating changes those dynamics.

source: epicenter.works

On the other hand, it seems logical enough that zero rating, if not offered by every major operator in a market, could increase customer loyalty, and thus confer some additional pricing power, which would again lead to higher prices where zero rating is offered.

“We assume our findings can ae explained in part by the fact that zero-rating distorts the normal competition between IAS providers based on data volumes and speeds,” the researchers suggest.

Others might argue that retail packaging and pricing are not a “distortion” but part of the fundamental pricing and packaging backdrop. The analogy would be seeing the introduction of the Apple iPhone as a distortion of the smartphone market, or simply an innovation.

source: EU

Zero rating may be correlated with mobile internet access price changes. But that does not mean zero rating causes prices to rise or fall.