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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/29851

Title: Why Imposing New Tolls on Third-Party Content and Applications Threatens Innovation and Will Not Improve Broadband Providers' Investment
Authors: Economides, Nicholas - NYU Stern School of Business
Issue Date: 2010
Series/Report no.: NET Institute Working Paper;10-01
Abstract: In this paper, I consider the impact of a departure from this current system. I examine the possible impact of last-mile broadband providers' imposing "termination fees" on third-party content providers or application providers to reach end-users. Broadband providers would engage in paid prioritization arrangements – that is, application and content providers could pay the broadband provider to have their traffic prioritized over competitors' services. I argue that these arrangements would create inefficiency in the market and harm innovation. Because the last mile access broadband market is concentrated and consumers face switching costs, these concerns are particularly significant. Broadband providers insist that imposing these new charges will greatly improve network investment, and thus these charges are beneficial. I argue that this is not the case. Possible higher revenues from discrimination may simply be returned to shareholders and not invested. Additionally, evidence suggests networks invest more under non-discrimination requirements, and paid prioritization schemes would divert money towards managing scarcity instead of expanding capacity. Paid prioritization could even create an incentive for broadband providers to create congestion to increase the price of prioritized service.
URI: http://hdl.handle.net/2451/29851
Appears in Collections:NET Institute Working Papers Series

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