Economic contribution to the debate on cost sharing policy

Abstract

This policy paper aims to contribute to understanding the recent debate on fair cost sharing between Big Techs and European telecommunication operators who offer complementary services: content and access to the Internet. We take stock from recent economic literature and empirical evidences to show the differences in business models and regulatory constraints have led to unequal net benefits from growing European digital economy. In particular, because the telecommunication operators have to bear the costs of delivering content to end-users, their business can be strongly affected due to the sharp increase in traffic generation. This negative externality should be internalized to correct the related market failure and to restore incentives to invest in the network infrastructure to meet the ambitious Europe's Digital Decade targets. Furthermore, we assess the interplay between access and content, and demonstrate how a fair cost sharing policy can impact investment, consumer surplus and social welfare. In particular, content providers that are efficient in monetizing consumers are incentivized to lower the cost of content to consumers, which positively impacts the consumer surplus and social welfare. Also, because cost sharing can even encourage digital platforms to better optimize the demand, this could have potentially positive effect on the environment. Finally, we give some recommendations to effectively implement the policy in practice.