Co-investment in ultra-fast broadband access networks: Is there a role for content providers?

Abstract

In many countries, Next Generation Access networks (NGA) deployment and penetration rate proceed at a slower pace than expected. It is argued that an ex ante contractual arrangement among residential-access Internet Service Providers (ISPs) and Content Providers (CPs), which builds on the complementarity between infrastructure and content, can promote the roll out of NGA. Indeed, one such contract brings down the portion of the investment cost borne by the ISPs (for a given cost of investment), increases end users׳ demand for improved connectivity and internalizes investment externalities. It is studied how a departure from network neutrality (NN) regulation of the Internet, allowing the ISP to negotiate with the CP a fee for (priority) delivery of content, affects firms׳ investment incentives. Using a simple model, it is shown that the ISP may invest more with than without NN, since the CP may have high bargaining power ex post (after NGA investment is sunk). Instead, the CP may be more willing to co-invest when NN is abandoned, either to evade high ex post fees (if the investment cost is low), or to foster NGA deployment (if the investment cost is high and the ISP has low bargaining power ex post).