Data caps are known as an effective tool to manage people’s data usage over cellular or Internet service provider (ISP) networks. Since many people control their data usage to avoid overage charges, there has been argument around the data cap policy among ISPs and users. However, there is little academic study about the effect of data caps.

The motivation of this paper is to clarify the effect of billing components for multiple tiers on ISP profit and user tier choice. The billing components include the basic tier price, the basic tier rate, the premium tier price, the premium tier rate, the data cap, and the overage charge. To formulate the billing policy, the paper distinguishes the data traffic for web browsing and video streaming. The authors model the user’s willingness to pay for web browsing and video streaming using the user’s time devoted to each application--one of the paper’s main contributions. Based on the willingness-to-pay model, it is possible to measure the user surplus over various billing policies. A sophisticated profit model is presented and the effects of the model on the ISP and users are analyzed. Through the analysis and numerical results, the paper shows some interesting findings about users’ behavior regarding the relative value they place on streaming and their willingness to pay.

Data traffic occurs not only as a result of people browsing the web or streaming video, but also as a result of using some applications. For example, file downloading can be activated by applications for updates or peer-to-peer cooperation. It will be interesting to study the effect of data traffic from applications, because it will increase costs.