Data caps and Two-sided Pricing: Evaluating Managed Service Business Models

With the transition from a flat rate dominated pricing regime towards volume-based tariffs, bandwidth is often bundled with specific allowances or overuse-charges for data consumption. One central element in many new telecommunications tariffs is the implementation of data caps, which are a common tool to address several challenges telecommunications providers face in today’s markets. In this context the recent introduction of so-called “managed services”, or “all-you-can-app” offers draws the attention of regulators. The term “managed service” is coined by operators to describe online-services that have a special agreement with the network operator. These service providers agree to revenue-sharing agreements and in turn their customers are alleviated from counting the data traffic they cause against their monthly quota. In this paper we develop a framework that incorporates the different forms of volume-based Internet tariffs in the market. Furthermore, we present the case of data caps in combination with managed services offers and derive the relevant research questions. In the following section we discuss the incentives of service providers to become a managed service and outline the creation of a theoretical model to analyze the case of data caps and managed services from an economic perspective. The paper concludes with a brief summary, general implications and a description of how to complete the presented theoretical approach.