Sponsoring mobile data: An economic analysis of the impact on users and content providers

In January 2014, AT&T introduced sponsored data to the U.S. mobile data market, allowing content providers (CPs) to subsidize users' cost of mobile data. As sponsored data gains traction in industry, it is important to understand its implications. This work considers CPs' choice of how much content to sponsor and the implications for users, CPs, and ISPs (Internet service providers). We first formulate a model of user, CP, and ISP interaction for heterogeneous users and CPs and derive their optimal behaviors. We then show that these behaviors can reverse our intuition as to how user demand and utility change with different user and CP characteristics. While all three parties can benefit from sponsored data, we find that sponsorship disproportionately favors less cost-constrained CPs and more cost-constrained users, exacerbating CP inequalities but making user demand more even. We also show that users' utilities increase more than CPs' with sponsored data. We finally illustrate these results in practice through numerical simulations with data from a commercial pricing trial and introduce a framework for CPs to decide which, in addition to how much, content to sponsor.