Internet Districts in Italy: Is Proximity an Antidote against Weak Broadband Competition?

We study the effects of proximity in the interconnections between Internet providers participating at the three main Italian Internet Exchange Points. We find that geographical proximity plays a role in driving Internet Providers’ interconnection, positively affecting the likelihood of an agreement. This suggests the existence of localized positive externalities in the form of mutual knowledge and reputation, one of the cited drivers underlying the formation of districts in non high-tech industries. We interpret these results as resulting from the necessity for cooperation in interconnection between smaller providers facing the weak competitiveness of the highly concentrated Italian broadband access market.