Network Neutrality and Private Sector Investment

Abstract

Pricing of internet connectivity services poses two important regulatory challenges. The first is which pricing model maximizes social welfare and allows achieving the most efficient degree of innovation and investment in two inter-dependent markets, internet access provision and internet content supply. The goal of this paper is to examine network neutrality economic and regulatory implications, to analyze how these implications are related to development goals and suggests policy recommendations. Network neutrality is a regulatory approach to internet connectivity pricing where customers and content providers (CP) pay a price to their respective local internet service provider (ISP) to access the internet, ISPs pay internet backbone providers (IBP) an interconnection price to route and transport traffic and net payments between IBP’s are normally zero. Under network neutrality all traffic is treated equally and consumer’s local ISP does not receive any payment from content providers for the traffic they send through their network. Congestion models are more heterogeneous and analyze bandwidth scarcity to disentangle the effect of internet access pricing on welfare, private investment, and innovation.