Fairness for Growth in the Internet Value Chain

Empyrical data show an exponential growth of IP traffic and a corresponding growth of the overall capitalization of the Internet market. However, the revenues generated by the Internet are not fairly distributed among all the players involved in the value chain. In spite of the increasing returns for over-the-top service providers, application developers, device producers, network operators, and content right owners are not taking advantage of Internet evolution. Analysts forecast that in a few years this imbalance will cause the congestion of the network without any motivation for new investments on it, thus ultimately bringing the Internet to collapse. On the other hand, if properly distributed, the value generated by Internet traffic would be sufficient to sustain innovation and growth. This paper demonstrates with mathematical arguments that a fair distribution of the operating incomes across the value chain would maximize the development rate. Furthermore, it analyses the bottlenecks in the value chain induced by the access-based business models currently adopted by operators and often enforced by regulatory authorities. Net neutrality and market law are the pillars of an alternative service-based model which could be adopted to grant to the network the degrees of freedom necessary to overcome its own bottlenecks while reducing the need for policy enforcement.