Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe (original) (raw)

Competition's Effect on Investment in Digital Infrastructure

2000

Competition has become a preferred means to promote investment in digital infrastructure. The U.S. Telecom Act, the WTO Reference Paper and EC Directives each adopt policies that encourage facilities-based entry into telecommunications markets to expand service coverage and to accelerate deployment of advanced technologies. Yet despite its popularity, empirical evidence that this policy stimulates infrastructure investment-either directly through entrants' construction activity or indirectly through competitive pressures applied to incumbents-is lacking.

The Arbitrage Mirage: Regulated Access Prices with Free Entry in Local Telecommunications Markets

Review of Network Economics, 2000

Incumbent telecommunications carriers have been mandated to share their networks with new retail service providers at regulated wholesale rates. This regulatory structure creates options which incumbent systems must write and which all potential entrants are awarded at a price of zero. Intense debate revolves around the effect of the policy in promoting investment in network infrastructure or retarding it. Rival viewpoints in the policy discussion, however, appear to share the fundamental position that the options issued entrants by incumbent network owners are a transfer of wealth. This paper notes that, to the extent that the regulations actually achieve their purpose in eliminating entry barriers, the assumption is incorrect. Eliminating the sunk costs associated with providing network services can result in regulatory arbitrage that reduces the value of the option to enter to zero. The U.S. market for local telecommunications has witnessed characteristic elements of this rent seeking competition, and financial markets suggest that investors have begun to incorporate the view that the regulated wholesale access regime results in zero long-term profits for entrants. 1 "The original idea behind unbundling is that because there are high entry barriers into the local access market, unbundling -that is, a weak form of divestiture -would permit new firms to 'leapfrog' those barriers to accelerate the pace of competition. In its most simple form, unbundling should lead to new network-based competition by providing new entrants initially with the appearance of 'ubiquity' and economies of scope necessary to enter a very costly business -that is, the entrant would first develop its Review of Network Economics Vol.2, Issue 4 -December 2003 441

Access Regulation, Entry and Investments in Telecommunications

SSRN Electronic Journal, 2000

This paper presents a model of competition between an incumbent and an entrant firm in telecommunications. The entrant has the option to enter the market with or without having preliminary invested in its own infrastructure; in case of facility based entry, the entrant has also the option to invest in the provision of enhanced services. In case of resale based entry the entrant needs access to the incumbent network. Unlike the rival, the incumbent has always the option to upgrade the existing network to provide advanced services. We study the impact of access regulation on the type of entry and on firms' investments. We find that without regulation the incumbent sets the access charge to prevent resale based entry and this generates a social inefficient level of facility based entry. Access regulation may discourage welfare enhancing investments, thus also inducing a socially inefficient outcome. We extend the model to account for negotiated interconnection in case of facilities based entry.

Infrastructure-Based Versus Service-Based : Competition In Telecommunications

Unbundling of the local loop (ULL) has seen quite different "success stories" in the various countries across Europe. Although the obligation for the provision of ULL was implemented in the regulatory framework early and mostly parallel to other means of liberalisation, national implementation has been rather heterogeneous. One question of decisive importance for national regulatory authorities (NRAs) was whether to foster service-based competition in the first phase of liberalisation or to focus on infrastructurebased competition. The different NRAs chose to head down different roads. This paper analyses whether the strategy of NRAs has had any mid-term effect on the economic welfare created in the communications markets. It indicates that infrastructure-based competition has a positive effect on innovation. Moreover, infrastructure-based competition appears to be more important for business customers than for residential clients. On the other hand, service-based competit...

Open Access Rules and Equilibrium Broadband Deployment

Contributions to Economics, 2004

Investment in advanced communications infrastructure promises such tantalizing payoffs as accelerated economic growth and enhanced national competitiveness. Relatively little disagreement arises in policy debates that such benefits are possible-usually only their size and distribution across the population are at issue. Bitter disputes, however, have broken out over which path will lead the communications sector to deploy these technologies most expeditiously and equitably.

Access Regulation, Entry, and Investment in Telecommunications

2011

This paper presents a model of competition between an incumbent and an entrant firm in telecommunications. The entrant has the option to enter the market with or without having preliminary invested in its own infrastructure; in case of facility based entry, the entrant has also the option to invest in the provision of enhanced services. In case of resale based