Fair-share payments for Network Investments

Abstract

Periodic investment in expanding the capacity of telecommunication networks is required to meet growing demand for data-intensive content. Telecommunication companies monetise deployed capacity by offering access to consumers, but complementary content providers capture a growing share of industry profits. As a consequence, network operators may invest suboptimally in capacity. We make this observation within a model where access and content are complementary products but capacity (maximum serviceable demand) is determined by costly investments of the access and content providers. We demonstrate how having content providers contribute a fair share of the infrastructure cost could resolve the externality problem, when the least costly way to meet capacity demands is by additional investments in the telecommunication networks rather than in reducing the bandwidth demand of content.