Large Traffic Generators (LTGs) and network usage: myths and realities

We investigate the economic justification for market-based payments from large internet traffic generators (LTGs) to network operators and internet service providers (ISPs) to support network investments, connectivity, and digital society objectives. Our analysis addresses ongoing debates about the LTG-ISP relationship. First, we confirm that traffic volume significantly influences network costs, countering claims to the contrary. Second, we frame telecommunications as a two-sided market where consumers access content and content providers reach consumers via networks, with payment structures varying based on market dynamics, as seen in other two-sided markets. We argue that extending incentives for efficient network use solely to consumers is ineffective due to their limited control over data consumption and transmission. In contrast, LTGs possess the technical expertise and capability to manage data flows, including optimizing their services' traffic generation, making them better candidates for such incentives. Despite this, market-based payment solutions have not gained traction. We identify regulatory constraints, such as net-neutrality rules, universal service obligations, and peering/interconnection regulations, as key factors reducing network operators' bargaining power. This asymmetry hinders their ability to negotiate agreements that effectively incentivize LTGs to use networks efficiently, limiting the adoption of such payment models.