Fair Share Payments for Network Investments

Periodic investment in expanding capacity of telecommunication networks is required to meet growing demand for data-intensive content. Telecommunication companies monetise deployed capacity by offering access to consumers, but complementary content providers capture a growing share of industry profits. As a consequence, network operators may invest suboptimally in capacity. We make this observation within a model where access and content are complementary products but capacity (maximum serviceable demand) is determined by costly investment of the access provider. We demonstrate that having content providers contribute a fair share of the infrastructure cost could resolve the externality problem. Finally, we argue regulatory intervention may be warranted, because free trading between firms in the presence of asymmetric information might not resolve the underinvestment problem.