Tuesday, November 15, 2011

Research Claims: Net Neutrality Increases the Incentive to Expand Infrastructure Capacity

The main debate over Net Neutrality is whether or not ISPs will be allowed to prioritized and/or discriminate content. Current US rules (which will become effective next week) do not allow "unreasonable discrimination: fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic" (here).

Many carriers said they should charge either the content owners ("they are using our network for free") or subscribers (by offering a premium service) in order to allow future investments in network infrastructure (and increase revenues).

One example - Telecom Italia CEO Franco Bernabe said (October 2010, here): "The mismatch between investments and revenue is set to compromise the economic sustainability of the current business model for telecom companies". See more quotes from French Government, Telefonica, DT, Orange(FT),  Verizon and Telekom Austria.

A research by H. Kenneth Cheng, H. Kenneth Cheng, University of Florida - Warrington College of Business Administration, Subhajyoti Bandyopadhyay University of Florida - Warrington College of Business Administration and Hong Guo (pictured), University of Notre Dame analyzes whether the above ideas are economically-justified, and allowing ISPs to charge content provider for content prioritization will incentivize them to invest in expanding their network infrastructure, as they say, or not.

The conclusion: "we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under net neutrality are higher than those under the no net neutrality regime except in some specific cases. Under net neutrality, the broadband service provider always invests in broadband infrastructure at the socially optimal level, but either under- or over-invests in infrastructure capacity in the absence of net neutrality"

See "The Debate on Net Neutrality: A Policy Perspective" - here.

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