Why Imposing New Tolls on Third-Party Content and Applications ThreatensInnovation and Will Not Improve Broadband Providers' Investment

In this paper, I consider the impact of a departure from this currentsystem. I examine the possible impact of last-mile broadband providers'imposing "termination fees" on third-party content providersor application providers to reach end-users. Broadband providers wouldengage in paid prioritization arrangements – that is, applicationand content providers could pay the broadband provider to have theirtraffic prioritized over competitors' services. I argue that thesearrangements would create inefficiency in the market and harminnovation. Because the last mile access broadband market isconcentrated and consumers face switching costs, these concerns areparticularly significant. Broadband providers insist that imposingthese new charges will greatly improve network investment, and thusthese charges are beneficial. I argue that this is not the case.Possible higher revenues from discrimination may simply be returned toshareholders and not invested. Additionally, evidence suggests networksinvest more under non-discrimination requirements, and paidprioritization schemes would divert money towards managing scarcityinstead of expanding capacity. Paid prioritization could even create anincentive for broadband providers to create congestion to increase theprice of prioritized service.