We have summarized the current situation and findings in the NN debate. We have formulated a general model to analyze the effect of adopting the NNN regime, and developed a simplified model, which is possible to solve analytically in order to obtain solutions that can be used to analyze the effects of adopting the NNN regime in an E2E multi actor environment. The analysis is based on the simplified model.
We model the following situation: Under the net neutrality regime, the CPs earn revenues from advertisers who pay proportionally to the IUs click-through rate. The CPs also have to connect to a backbone ISP in order to connect to the Internet. The access ISPs connects the backbone of the Internet to the IUs, who pays the access ISPs for connectivity. In the NNN regime, the ISPs can offer specialized services (SS), similar to a priority lane, which put all the packages in specialized services first in line. The CPs can pay a fee to access SS. Those who do not pay have to connect through internet access services, which is similar to the neutral best effort internet.
We have solved the model analytically and done numerical experiments to compare the effect of adopting the NNN regime versus the NN regime.
We show that in the unregulated NNN regime the investments are always higher since they are able to be partly compensated for their investments by the additional revenues in the SS lane. The consequence is that the innovation levels measured in volume is higher and the average congestion levels are lower. We have shown that the backbone ISP always prefers the NNN regime, and also reduce the benefit of the NNN regime for the other actors in the ecosystem. We also show that the social welfare is
always higher in the unregulated NNN regime. However, the individual player’s benefits are more ambiguous, with the exception of the backbone ISP that always benefits from the NNN regime. Lastly, we have shown that some regulation on the IAS lane’s QoS can improve the overall social welfare.
Our numerical experiments show the importance of understanding how the attractiveness of advertising (the r/λ ratio) is in the ecosystem, and that extreme values of this ratio severely separated the benefiters and losers of the NNN regime on two. When the ratio is low, the CPs and IUs are worse off while the access ISP is better off. The opposite is true when the ratio is high. Regulators and policy makers should therefore be wary of this ratio. We also show that the NNN regime might enforce higher investments as the CPs becomes more congestion sensitive, and that it greatly benefits the IUs as they become more dependent of the CPs and QoS. This is because the NNN regime provides considerably higher investments and innovation levels compared to the price the IUs are willing to pay, when the CPs also pay for investments in the NNN regime. We show that a flexible network is favorable, and that splitting the network in two will double the average congestion levels. Lastly, we show that some regulation on the IAS lane could be positive, and lead to an overall higher social welfare as well as a widened r/λ ratio range where all players are better off in the NNN regime. However, regulation may also have some unwanted effects where especially the IUs can be severely damaged as they are forced to pay for the extra investments that might be required by regulation. Too much regulation can also lead to a worsened overall social welfare in the NNN regime, in contrast to the unregulated NNN regime where it is always positive.
We do confirm the arguments posed by the NNN regime proponents. In our model the conceptual arguments posed by the NN-proponents are already in accordance with most of our model settings, as there is no blocking of any content. And, our findings conclude that there should not be any fear that the NNN regime will stifle innovation as measured in volume of content from the CPs.
The main contribution to the NN debate from this thesis is the introduction of the backbone ISP. We show that the NNN regime is still favorable in the E2E perspective. However, we also show that, under our assumptions, the backbone ISP is always better off in the NNN regime. This means that the backbone is eating off the other player’s benefits, which makes their benefits of the NNN regime more ambiguous. However, the overall assessment is still in favor of the NNN regime because of the increase in social welfare, investments and innovation, an improved average QoS and the ability to greatly benefit the IUs as they become more dependent on the Internet. This is because an NNN regime protects the interests of the IUs in such a scenario, as the regime prevents the IUs from paying more for investments than they gain from the extra utility from more volume of CPs content and a higher QoS. The Internet is rapidly becoming a more important part of everybody’s lives, so a scenario where we
are sufficiently dependent on CPs and QoS to pay more than our gained utility is not unlikely. Maybe, in the future, the NNN regime can protect us, the IUs, from that.