Pricing Internet: The New Zealand Experience

New Zealand's research and educational network connects to Internet via an expensive trans-Paci c satellite link to FIX-West. Initially subsidized by NASA, the link is now self-funding. The link is managed by a consortium of universities and research institutes, which has instituted a volume based charging regime to recover total operating costs from the participating institutions. Individual sites pursue independent policies for recovering these costs from users, so that Internet users in New Zealand face a variety of pricing regimes. New Zealand therefore provides a useful laboratory for examining the impact of pricing on Internet usage. The paper documents the evolution of New Zealand's Internet pricing scheme and the cost recovery policies utilized by the main sites. The characteristics of the tra c to and from these sites is analyzed. A simple model of demand for Internet services is developed, which establishes a link between the rate of growth of international tra c and pricing regime. The model is estimated using monthly data on tra c across the international link, in an attempt to assess the impact of pricing regime on demand for Internet services. Comparisons are drawn with the experience of Australia and Chile. Our results provide some insight into the likely impact of commercialization on the future of Internet.