Free Internet Access and Regulation: A Note

We consider the effect of the regulation of telephony on Haan's [2001] analysis of the economics of free Internet access. Haan considers an unregulated market, and finds that free Internet access is compatible with an efficient outcome and avoids the double marginalization problem. We find that if there is binding price-cap regulation, then free Internet access is never efficient: ISP access charges will be strictly positive. This suggests that either price-cap regulation is nonbinding in the ISP access market, or some other explanation is required.