Splitting the bill for bits: Shapley-based cost sharing in European telecommunications

Abstract

This paper addresses the ongoing debate in the European Union over whether a “Sender Party Network Pays” regulation would solve underinvestment in very high-capacity networks and enhance the competitiveness of the European telecommunications sector. Operators argue that large content providers free ride on infrastructure and should contribute a “fair share” of delivery costs, though policy discussions rarely specify how such shares should be defined. Using a cooperative game-theoretic framework, we apply the Shapley value to formalize this notion of fairness. The model shows that operators and content providers should split traffic-related costs equally, while consumers should bear no direct burden; in competitive settings, the operator side divides its share in proportion to market shares, and equally when operators are symmetric. Because the allocation depends only on observable cost parameters, the framework is straightforward to implement. Incorporating such a rule into market incentives shifts equilibrium closer to the social optimum, leading to higher infrastructure investment and improvements in both consumer surplus and overall welfare.