Presentation at TPRC46 (Sep. 21, 2018)

1. Zero-rating and Net Neutrality in the Mobile Market: The Case of Japan
Toshiya JITSUZUMI, D.Sc.
Professor, Chuo University
jitsuzumi@tamacc.chuo-u.ac.jp
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 1

2. Presentation agenda
1. Background and motivation
2. Research questions
3. The status quo of Japanese mobile subscribers
4. Model and empirical analysis
5. Summary and policy implication
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 2

3. Essence of issues and a reason of different approaches
Essence of net neutrality “issues”
1. How to efficiently allocate scarce network resources to each application
2. How to discipline the market power of dominant BIAS providers
If the market is competitive enough, market dynamism ensures efficient allocation of resources, which is
the basic consideration behind the Japanese government’s “light-touch approach” in the fixed BB age.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 3
Source: Adapted from Fig. 1 in Jitsuzumi (2015)
Low barriers
to entry
High barriers
to entry
Demand management
Capacity development
Short-termsolution
Long-term solution
How to achieve efficient and fair traffic
management in the dynamic condition?
How to calculate the optimal
capacity and how to finance it?
Congestioncontrolover the Internetbackbone
facing the exafloodof networkdemand
Controlledby vertically
integrated networkproviders
Leverage into the
neighboringmarket
How to discipline the behaviors of
SMPs in the communication market?
Is it efficient?
How to restrain the anti-competitive
behaviors?
Controlthe monopolistic leverage ofSMPs
ISPs
Network operators
Users
Content providers
Application providers
Natural
monopoly
Unique business
practices
Local Loop Unbundling
(dark fiber, dry copper, and line-sharing)
Service
-based
Operator
ISP
Facility-based
Operator
(cableco)
ISP
Local Loop Unbundling (dry copper)
The USJapan
Wholesale or Interconnection
NTT-east/west
Access
Wholesaler
IndependentISP
Service
-based
Operator
Facility-based
Operator
NTT East/West
ISP
Physical
Facility
Broadband
Access
ISP
Retail
Service
Facility-based Operator
(telco)
1. Background and motivation

4. But Japan needs a new approach for the mobile BIAS
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 4
42.8% 42.6% 42.3% 42.2% 42.2% 42.3% 42.5%
28.0% 28.1% 28.2% 28.2% 28.3% 28.4% 28.6%
29.1% 29.3% 29.5% 29.5% 29.5% 29.2% 28.8%
3469 3462 3455 3452 3451 3455 3459
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
0%
20%
40%
60%
80%
100%
Sep. 2013 Dec. 2013 Mar. 2014 Jun. 2014 Sep. 2014 Dec. 2014 Mar. 2015
Share of the mobile data market in Japan
NTT group KDDI group SB group HHI
1. Background and motivation
HHI in the mobile mkt=3,459
(Mar. 2015)
31.5% 30.3% 29.8% 28.8% 28.0% 27.1%
8.4% 9.8% 8.5% 9.8%
17.9% 19.0%
13.4% 12.7% 12.4% 12.4%
12.7% 12.4%
26.4% 25.4%
24.8% 24.9%
24.6% 24.6%
5.1% 5.4%
5.7% 5.9%
6.2% 6.3%
9.8% 9.5% 12.1% 9.8%
2.3% 2.4%
5.4% 6.9% 6.6% 8.4% 8.3% 8.2%
1527 1441 1398 1361 1491 1476
0
2,000
4,000
6,000
8,000
10,000
0%
20%
40%
60%
80%
100%
Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015
Share of the fixed ISP market in Japan
NTT group KDDI group SB group vender powerco cableTV other HHI
HHI in the fixed mkt=1,476
(Mar. 2015)
Share of the mobile ISP market in Japan

5. A new move of the MIC
According to the newspaper article on Sep. 4,
2018, in order to mitigate concerns that incumbent
MNOs harm the mobile broadband competition by
prioritizing their own MVNO subsidiaries, the
Japanese telecom regulator, MIC, is going to
introduce a special “non-discrimination rule” for the
interconnection agreement between incumbent
MNOs and MVNOs.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 5

6. Zero-rating: a new issue in the mobile BIAS market
Zero-rating is a practice that exempts internet traffic generated through
certain applications or access to certain websites from usage charges.
◦ The effective discount on the cost of accessing content that follows
from zero-rating should be expected to affect:
◦ the decision whether or not to obtain access,
◦ the choice of access provider, and
◦ the choice of content and the amount of data consumption overall.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 6
Source: DotEcon et al. (2017)
1. Background and motivation
By offering zero-rating options, BIAS providers prioritize certain content/applications over others and can
distort the competition.
1. If used anti-competitively, zero-rating may cause significant loss of efficiency in the broadband
ecosystem as a whole.
2. It is also possible that zero-rating can work pro-competitively.
It can change the competitive dimensions of the market, allow small players differentiate from incumbent, and
help them get market share.

7. Zero-rating in Japan
In June 2015, the first Japanese zero-rating that provides free access
to photo-printing site of photo supply chain was introduced in the
market.
Since then, zero-rating has been introduced mainly by MVNOs.
◦ Layton and Calderwood (2015, p.5) suggest that entrant operators such as
MVNOs and resellers, who are less able to differentiate on network quality
and price, have often implemented zero-rating.
There are three purposes of zero-rating in Japanese MVNOs.
1. To offer free access to operator-owned application site
2. To provide free distribution of parent firm’s IP-video
3. To provide free access to third-parties’ applications
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 7
1. Background and motivation

8. Unique situation in the Japanese mobile BIAS market
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 8
Source：Created using material provided by the MIC.
Other facilities
Category II designated telecommunications facilities
Prohibited activity regulations
Notification of
interconnection tariff
Access lines and related
telecommunications facilities
Access lines
(More than 10% share)（Some servers, etc.）
Development of
interconnection accountsNon-regulation
Regulation of lending facilities to other carriers
Non-regulation
Prohibition of abuse of
information obtained
through interconnection
Prohibition of unfairly
advantageous treatment
for specific carriers
Prohibition of undue
interference with
equipment
manufacturers, etc.
Interconnection
regulations
Price regulations
Restrictions for
corporate behavior
Applied as necessary
when 25% of shares
on a revenue basis is
exceeded
Telecommunications carriers installing Category II designated telecommunications facilities
1. Background and motivation
Legally speaking, incumbent MNOs are free to provide zero-rating, as long as their subscribers are given
sufficient information of their service details beforehand and consent to such information.
◦ It is possible that MNOs do not want to invite unnecessary attention from regulators or competition
authorities and damage their good relationships with the MIC.
◦ It is important to keep in mind that
the radio spectrum is allocated in
Japan not based on auctions but
on “beauty contests.”
As a result, only MVNOs offer zero-
rating to differentiate themselves from
others, assuming that zero-rating is
attractive enough to mobile
subscribers.

9. But from this September, SoftBank is changing the picture.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 9
On August 29th, 2018, SoftBank announced that it will start providing zero-rating services for major
internet videos and SNSs starting from September 7th, 2018.

10. From the viewpoint of promoting net neutrality and optimal resource allocation, the anti-competitive
impact of zero-rating provides additional reasons for stricter governmental intervention or “heavy-
handed” approach.
On the other hand, the pro-competitive impact calls for the adoption of a market-based “light-touch”
approach.
Motivation and purpose of this study
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 10
2. Research Questions and Method
Two research questions
1. What is the status quo of the net
neutrality and zero-rating situation in the
Japanese mobile market
2. Whether zero-rating is powerful enough
for Japanese MVNOs to fight against
incumbent MNOs
Research method
◦ Conducted two web-based questionnaire
surveys, in May, 2016 and in January,
2018.
2016 Survey 2018 Survey
Survey period May 26, 2016 – May 30, 2016
Jan. 25, 2018 – Jan. 30. 2018
Feb. 9, 2018 – Feb. 28, 2018
Number of responses 1,067 1,504
Demographics
Gender
Male: 539 (50.5%)
Female: 528 (49.5%)
Male: 787 (52.3%)
Female: 717 (47.7%)
Average age (in years)
41.7
15 to 29: 246 (23.1%), 30s: 275 (25.8%), 40s:
280 (26.2%), 50s: 147 (13.8%),
Over 60: 119 (11.2%)
45.8
15 to 29: 282 (18.8%), 30s: 288 (19.1%), 40s:
309 (20.5%), 50s: 313 (20.8%),
Over 60: 312 (20.7%)
Average household income 5.7M yen per annum (N=877) 6.3M yen per annum
Average Internet experience 9.5 years 9.5 years
Average mobile Internet experience N/A 7.5 years
Research firm NTTCom Online Marketing Solutions Corporation

11. NN literacy
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 11
3. The status quo of Japanese mobile subscribers
2016 Survey
Know well
7.3%
Only know
the term
20.5%
Not
familiar
72.2%
Do you understand “net
neutrality”?
46.2%
32.1%
16.7%
2.6%
2.6%
9.1%
22.4%
19.2%
0.9%
48.4%
0% 10% 20% 30% 40% 50%
NN is secured
NN is partially breached but
causes no harm
NN is partially breached and
causes some harm
NN is badly breached and
causes harm
I don't know
Do you see any net neutrality "problems"?
Know well Only know the termN=1,067

12. Situation of mobile broadband usage
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 12
3. The status quo of Japanese mobile subscribers
2018 Survey
NTTdocomo
, 35.0%
KDDI,
21.3%
Softbank,
15.0%
Y!mobile,
7.1%
Rakuten,
7.0%
NTTcommun
ications,
3.1%
Main handsets
N=1,504
MNO
78.5%
MVNO
21.5%
Main
34.2%
68.5%
16.9%
11.4%
22.7%
8.3%
15.3%
7.4%
6.6%
1.9%
4.2%
2.5%
MNO
MVNO
Main handsets
Provide equivalent
service with less
price tag
41.6%
Provide more
innovative service
plan
15.7%
Firms with less
trust
19.6%
Provide
technically-
less-stable
service
13.6%
Untrusted
marketing
message
5.6%
Inferior
customer
care
3.9%
Image of MVNO

13. Situation of mobile broadband usage
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 13
3. The status quo of Japanese mobile subscribers
2018 Survey
Determinant of data cap
Average: 6,429.7 yen
Median: 6,000 yen
s.d.: 4,541.77 yen
N=1,504N
Average: 8.5GB
Median: 5GB
s.d.: 13.02GB
N=1,284*
* Excludes 139 respondents with unlimited data plans.
N
Note: Respondents were allowed to choose up to 3 options.

14. Mobile data overage
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 14
3. The status quo of Japanese mobile subscribers
2018 Survey
Number of data overages in 2017
Never, 79.5%
once, 4.2%
twice, 5.8%
three times, 3.9%
four times, 0.9%
five times, 2.8%
six times, 0.7%
seven times, 0.1%
eight times, 0.4% nine times, 0.1% ten times, 0.8%
eleven times, 0.1%
every month, 0.8%
Overage can happen based on rational decision making.
◦ Some users may intentionally exceed their monthly cap
quite regularly, up to 6 times a year, in order to minimize
their monthly payment for mobile broadband.
Therefore, overuse is not an accidental phenomenon but a
part of calculated costs, meaning the true probability of
accidental overuse is much smaller.
The share of month in which subscribers
exceed monthly cap is 6.04%, or 1,091
months out of 18,048 months.
1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2
Monthly Fee
Approx. 8,000yen
Approx. 6,000yen
Approx. 5,000yen
Approx. 4,000yen
Approx. 3,500yen
Approx. 3,000yen
Approx. 2,000yen
Approx. 1,500yen
1GB
2GB 3GB
5GB
6GB
10GB 20GB 30GB
Red：Standard fee of incumbent MNO
Green：Standard fee of incumbent MVNO
Differences in monthly tariff of mobile data
◦ Subscribing to a monthly cap
that is 1 GB higher costs extra
500 yen per month. On the
other hand, users must pay
1,000 yen for an additional 1
GB when they go over their
monthly cap.

15. Estimating true probability of accidental data overage
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 15
𝑃𝑜 0.045 ：P 𝑋 = 𝑘 =
0.045 𝑘
𝑘!
𝑒−0.045
X: number of data overages in 2017
0%
25%
50%
75%
100%
0 1 2 3 4 5 6 7 8 9 10 11 12
# of data overages per year
# of data overages (actual)
Simulation
Estimated data overages of individual user
3. The status quo of Japanese mobile subscribers
2018 Survey
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8 9 10 11 12
Group1
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8 9 10 11 12
Group6
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8 9 10 11 12
Group12
Users whose usually data
use requires overuse of
one-level-below monthly
cap 6 times a year.
Users whose usually
data use requires no
overuse of the
current monthly cap.
Users whose usually data use
requires overuse of the current
monthly cap 5 times a year.
Poissondistribution
0
100
200
300
400
500
600
0 1 2 3 4 5 6 7 8 9 10 11 12
# of overuse in a year
Observed distribution of overuse
Group1 Group2 Group3 Group4 Group5 Group6
Group7 Group8 Group9 Group10 Group11 Group12
Share in the subscribers
0%
20%
40%
60%
80%
100%
0 20 40 60 80 100
Monthly cap (GB)
Accumulated share
= 0. 5 0. 4
Estimated user distribution
y: accumulated share
x: monthly data cap
Japanese users have a
good grasp of their own
mobile data usages, which
are very constant in volume.

16. Penetration of zero-rating services in Japan
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 16
3. The status quo of Japanese mobile subscribers
Using zero-rating
services
7.1%
Familiar
with but
not using
20.9%
Not
familiar
with
71.9%
N=1,504
2018 Survey

17. Value of zero-rating: conjoint approach
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 17
4. Model and empirical analysis
2018 Survey
Respondents were required to assume a situation where
these new zero-rating options become available; then, they
were asked to choose one from four options, including
staying with their current operator [the 4th option].
Conditions
• No changes in voice communication
• Any charges incurred in the transition, such as cancellation charges for long-
term contracts and fees for getting new handsets, will be covered by the
provider.
• “Degraded video” offers video quality that is just right for smartphones but
insufficient for larger screens.
A8:
Assume the following three hypothetical data plans become available. In
addition, the fourth plan allows you to stay with your current provider. Select the
one that suits you best.
Option 1 Option 2 Option 3 Option 4
Zero-rating
availability
Zero-rating is
not available
Free for video
streaming
Free for music
streaming
Continue the
current mobile
BIAS contract
Size of additional
monthly cap
Add 1GB Add 3GB No addition
BIAS provider New MVNO Other MNO Other MNO
Additional
monthly fee
+500yen +1,000yen +500yen
Attribute Level [Corresponding Variable]
Zero-rating availability • Zero-rating is not available [default]
• Free for music streaming [ZRMUSIC=1]
• Free for degraded video streaming [ZRdVIDEO=1]
• Free for video streaming [ZRVIDEO=1]
Size of additional
monthly cap
• 0 GB [CAP=0]
• 1 GB [CAP=1]
• 3 GB [CAP=3]
• 10 GB [CAP=10]
BIAS provider • Incumbent MNO [default]
• Incumbent MVNO [DMVNO=1]
• New MVNO [DnMVNO=1]
Additional monthly fee • 0 yen [Fee=0]
• 250 yen [Fee=250]
• 500 yen [Fee=500]
• 750 yen [Fee=750]
• 1,000 yen [Fee=1,000]
Stay • Try new option [default]
• Do not use zero-rating or change provider [DStay=1]
The respondents are explained that their choices affect
only on mobile “data” offerings, and not on the other
aspects of their mobile communications experiences.

18. Value of zero-rating: RPM model and estimated parameters
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 18
4. Model and empirical analysis
2018 Survey
Uij = Vij + 𝜀𝑖𝑗 (1)
Pik = prob 𝑈𝑖𝑘 > 𝑈𝑖𝑗 ,∀𝑗 ≠ 𝑘 = 𝐼 𝜀𝑖𝑗 − 𝜀𝑖𝑘 < 𝑉𝑖𝑘 − 𝑉𝑖𝑗 , ∀j ≠ k 𝑓 𝛆𝐢 𝑑𝛆𝐢 (2)
Pik =
exp 𝛃𝐢′𝐗
exp 𝛃𝐢′𝐗𝑗
𝑔 𝛃|𝛉 𝑑𝛃 (3)
Uij = 𝛽𝑍𝑅 𝑙
+ 𝜎𝑍𝑅 𝑙
𝑣 𝑍𝑅 𝑙
𝑍𝑅𝑙𝑙 + 𝛽𝐶𝐴𝑃 + 𝜎𝐶𝐴𝑃 𝑣 𝐶𝐴𝑃 𝐶𝐴𝑃 +
𝛽 𝐷 𝑚
+ 𝜎 𝐷 𝑚
𝑣 𝐷 𝑚
𝐷 𝑚𝑚 + 𝛽 𝐷 𝑆𝑡𝑎𝑦
+ 𝜎 𝐷 𝑆𝑡𝑎𝑦
𝑣 𝐷 𝑆𝑡𝑎𝑦
𝐷𝑆𝑡𝑎𝑦 +
𝛽𝐹𝑒𝑒 𝐹𝑒𝑒 + 𝜀𝑖𝑗
(4)
Where 𝑙 = MUSIC, dVIDEO, VIDEO , 𝑚 = MVNO, nMVNO
Variable Parameter Coefficient (b)
Std. Error
(S.E.)
b/S.E.
Random parameters in Utility Functions
ZRMUSIC βZR_MUSIC 0.36547 0.05982 6.11***
ZRdVIDEO βZR_dVIDEO -0.16201 0.35348 -0.46
ZRVIDEO βZR_VIDEO 0.44883 0.22984 1.95*
CAP βCAP 0.05097 0.00615 8.29***
DMVNO βD_MVNO -0.08898 0.04815 -1.85*
DnMVNO βD_nMVNO -0.39641 0.11536 -3.44***
DSTAY βD_STAY 1.3741 0.05874 23.39***
Nonrandom parameters in Utility Function
FEE βFEE -0.00195.7818E-04 -24.92***
Derived Std. Deviations of Parameter Distribution
νZR_MUSIC σZR_MUSIC 0.06213 0.17622 0.35
νZR_dVIDEO σZR_dVIDEO 0.64713 0.77046 0.84
νZR_VIDEO σZR_VIDEO 0.51509 0.6697 0.77
νCAP σCAP 0.01235 0.02187 0.56
νD_MVNO σD_MVNO 0.01433 0.11906 0.12
νD_nMVNO σD_nMVNO 0.37232 0.38659 0.96
νD_STAY σD_STAY 0.03125 0.28398 0.11
N 8928 K 15
Log Likelihood -7777.50565 McFadden Pseudo R2 .3716079
Restricted L.L. -12376.83606 Prob [ChiSqd>value] 0.00000
Note: *** , **, and * represent p<0.01, p<0.05. and p<0.1, respectively.

19. Alternative specifications
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 19
4. Model and empirical analysis
2018 Survey
Attribute Level [Corresponding Variable]
Size of additional monthly cap • 0 GB [LCAP=0]
• 1 GB [LCAP=1+ln1]
• 3 GB [LCAP=1+ln3]
• 10 GB [LCAP=1+ln10]
Model A1
Attribute Level [Corresponding Variable]
Size of additional monthly cap • 0 GB [default]
• 1 GB [DC_1=1]
• 3 GB [DC_3=1]
• 10 GB [DC_10=1]
Model A2

20. Power of zero-rating
Results of the willingness-to-pay (WTP) and equivalent data allowance (EDA) (monthly)
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 20
4. Model and empirical analysis
2018 Survey
Attribute Basic model Model A1 Model A2
Zero-rating for No zero-rating 0 yen (default) 0 yen (default) 0 yen (default)
Music streaming 187.4 yen 184.5 yen 156.4 yen
Degraded video streaming Not significant Not significant Not significant
Original-quality video streaming 230.2 yen 281.9 yen 268.8 yen
Monthly cap No addition 0 yen (default) 0 yen (default) 0 yen (default)
+1GB 26.1 yen 101.2 yen 93.5 yen
+3GB 78.4 yen 212.4 yen 296.5 yen
+10GB 261.4 yen 264.1 yen 285.0 yen
BIAS provider Incumbent MNO 0 yen (default) 0 yen (default) 0 yen (default)
Incumbent MVNO -45.6 yen -59.5 yen -67.8 yen
New MVNO -203.3 yen -164.7 yen -178.7 yen
Stay 704.7 yen 789.7 yen 791.6 yen

21. Zero-rating vs. brand loyalty
Brand loyalty to the incumbent player can
act as a barrier to switching providers.
Willingness to Pay to “Stay” option is
exactly the value that new providers must
overcome to take market share from the
incumbents.
To be powerful enough to steal market
share from the incumbent MNOs, WTP
for MVNO’s zero-rating has to be above
the value to “Stay.”
Unfortunately, based on our estimates,
MVNOs have to offer additional discount,
or face difficulties penetrating the mobile
data market.
T. JITSUZUMI@TPRC46（Sep. 21, 2018）
4. Model and empirical analysis
2018 Survey
Value of staying
[brand loyalty]
Difficult to
penetrate
the MNO
market
Easy to
penetrate
the MNO
market
WTP for staying
with a current
MNO
Minimum
level of
required
discount
WTP for
zero-rating
Value of new option
750.3
562.9 520.1
332.7
0.0
200.0
400.0
600.0
800.0
Stay with
MNO
Option 1 Option 2 Option 1+2
Base Model: All respondents
Loyalty to MNO Zero-rating for music
Zero-rating for video Required discount
Yen/month

22. Zero-rating vs. brand loyalty
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 22
4. Model and empirical analysis
2018 Survey
The estimated values of MNO loyalty in the mobile “data” offerings are much smaller among MNO users than the actual
discounts that Japanese MVNOs are currently offering to penetrate the mobile market, which indicates that the cost and
quality of mobile data service are not the only reason for their low penetration.
• Compared with MNOs, MVNOs offer as much as 1,500 to 3,000 yen per month cost savings.
746.6 795.3
610.4
0
200
400
600
800
1000
Stay with
MNO
Option 1 Option 2 Option 1+2
Main Handset: MNO
Loyalty to MNO Zero-rating for music
Zero-rating for video Required discount
118.1 148.5 86.6
0
200
400
600
800
1000
Stay with
MNO
Option 1 Option 2 Option 1+2
Main Handset: MVNO
Loyalty to MNO Zero-rating for music
Zero-rating for video Required discount

23. Hypotheses for shift parameters
H1: ZRs are more attractive for
budget-constrained
subscribers.
H2: ZRs are more attractive to
subscribers who have
experienced data overages.
H3: ZRs are less attractive for
subscribers with larger caps.
H4: ZRs are more attractive for
younger generations.
H5: ZRs are more attractive for
active internet users.
H5-1: The parameter for
subscribers who more actively
enjoy music or videos via the
internet is more positive than
for other subscribers.
H5-2: The, the parameter for
subscribers with more
experience is more positive
than for other subscribers.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 23
For additional monthly cap (CAP)
H6:Additional data allowances
are less attractive for bigger-cap
holders.
H7:Additional data allowances
are more attractive for budget-
constrained subscribers.
H8:Additional data allowances
are more attractive for subscribers
who have experienced data
overages.
H9:Additional data allowances
are more attractive for active
internet users.
For a staying option (DSTAY)
H13: Staying option is less
attractive for users who have
experienced data overages.
H14: Staying option is more
attractive for older generations.
H15: Staying option is less
attractive for active internet users.
For choosing MVNOs (DMVNO, DnMVNO)
H10: Choosing MVNOs is more
attractive for users who view
MVNOs favorably.
H11: Choosing MVNOs is less
attractive for budget-constrained
subscribers.
H12: Choosing MVNOs is more
attractive for active internet users.
4. Model and empirical analysis
2018 Survey
Blue: confirmed as expected
Red: confirmed contrary to expected
Green: mixed result
Gray: insignificant result
The results show that use of
ZR for video can fit well with
traditional economic theory
while use of ZR for music
cannot, implying consumers’
behavior toward ZR is
heavily influenced by the
category of the targeted
content.
H1: ZRs are more attractive for
budget-constrained
subscribers.
H2: ZRs are more attractive to
subscribers who have
experienced data overages.
H3: ZRs are less attractive for
subscribers with larger caps.
H4: ZRs are more attractive for
younger generations.
H5: ZRs are more attractive for
active internet users.
H5-1: The parameter for
subscribers who more actively
enjoy music or videos via the
internet is more positive than
for other subscribers.
H5-2: The, the parameter for
subscribers with more
experience is more positive
than for other subscribers.
H1: ZRs are more attractive for
budget-constrained
subscribers.
H2: ZRs are more attractive to
subscribers who have
experienced data overages.
H3: ZRs are less attractive for
subscribers with larger caps.
H4: ZRs are more attractive for
younger generations.
H5: ZRs are more attractive for
active internet users.
H5-1: The parameter for
subscribers who more actively
enjoy music or videos via the
internet is more positive than
for other subscribers.
H5-2: The, the parameter for
subscribers with more
experience is more positive
than for other subscribers.
Hypotheses for the value of ZRs
For music For degraded video For video

24. Summary: observation
Japan’s NN in the fixed BB has been maintained thanks to “pre-internet” regulations and the competitive
ISP market so far. The situation may change in the mobile BB market where three MNOs dominate.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 24
5. Summary and policy implication
Empirical estimation shows that ZR does have the
power to attract consumers, especially video/music
lovers, but on its own is not strong enough to threaten
the dominance of incumbent players in the mobile
data market.
RQ1: What is the status quo of the NN and ZR in the Japanese mobile market
RQ2: Whether ZR is powerful enough for Japanese
MVNOs to fight against incumbent MNOs
The questionnaire surveys revealed that in Japan:
1. broadband users do not clearly understand NN,
2. mobile users may not efficiently select their cap, or their usage is quite
constant in volume, and
3. the popularity of ZR in Japan is quite limited, but it has a potential if it
becomes familiar among users.

25. Discussions for policymaking: Two step approach
It is too early for Japan’s policymakers to be concerned about the anti-competitive potential of ZR in the
mobile market.
T. JITSUZUMI@TPRC46（Sep. 21, 2018） 25
5. Summary and policy implication
In the short term, as long as the visibility of MVNOs is low, regulators have
to maintain a light-touch approach, such as:
i. maintaining current non-discrimination safeguards for all operators,
ii. strengthening SMP rules for incumbent MNOs
e.g. Facing the introduction of zero-rating options from SoftBank, the MIC has
to determine conditions under which MNOs can offer ZR services without
harming competition.
iii. not controlling marketing initiatives of MVNOs, including ZR.
iv. Encouraging literacy of the demand side by educating end users about
the value of a neutral network.
Step 1
Step 2
This will also minimize the anti-
competitive effects of ZR in the
neighboring markets.
As long as MVNOs are not SMPs,
their ZR will not harm the
neighboring markets.
After it is confirmed that competitiveness in the mobile market is sufficiently established, it is then
important to deal with the negative aspects of ZR in the ecosystem as a whole.
◦ It may be necessary to introduce neutrally rules for the interconnection between BIAS and CAP.

26. T. JITSUZUMI@TPRC46（Sep. 21, 2018） 26
Zero-rating and Net Neutrality in the Mobile Market: The Case of Japan
Toshiya JITSUZUMI, D.Sc.
Professor, Chuo University
jitsuzumi@tamacc.chuo-u.ac.jp