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The momentum for network separation: a guide for regulators

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  • Ricardo Gonçalves

    ()
    (Faculdade de Economia e Gestão - Universidade Católica Portuguesa - Porto)

  • Álvaro Nascimento

    ()
    (Faculdade de Economia e Gestão - Universidade Católica Portuguesa - Porto)

Abstract

NGAs (Next Generation Access Networks) are a challenge to regulators and operators insofar as they require large investments, there is significant uncertainty about the ability to recover costs, and the choice of the appropriate regulatory regime is far from consensual. Regulatory authorities might want to seize the moment and reconsider the mandatory vertical separation of telecommunication firms, without jeopardizing incentives to innovation, investment and welfare. We provide a provocative but simple test for the adequacy of network separation as a regulatory remedy. We propose a decision tree procedure with four steps in order to assess whether network separation is an adequate regulatory response: [1] “Is there significant market power in the market for the provision of access services under NGAs?”; [2] “Are there few vertical complementarities between services along the supply chain?”; [3] “Is functional separation a better regulatory tool than any other alternative?”; and [4] “Is structural separation superior to functional separation?”. A positive answer to the first three questions implies that the regulator should consider functional network separation, whilst the fourth is needed for the structural alternative.

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File URL: http://www.porto.ucp.pt/feg/repec/WP/032009%20-%20GoncalvesNascimento%20-%20The%20momentum%20for%20network%20separation%20-%20a%20guide%20for%20regulators.pdf
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Bibliographic Info

Paper provided by Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto) in its series Working Papers de Economia (Economics Working Papers) with number 03.

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Length: 11 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:cap:wpaper:032009

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Keywords: Telecommunications networks; Functional separation; Structural separation;

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  2. Cave, Martin, 2006. "Six Degrees of Separation : Operational Separation as a Remedy in European Telecommunications Regulation," MPRA Paper 3572, University Library of Munich, Germany.
  3. Fabian KIRSCH & Christian von HIRSCHHAUSEN, 2008. "Regulation of NGN: Structural Separation, Access Regulation, or No Regulation at All?," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(69), pages 63-84, 1st quart.
  4. Paul de Bijl, 2005. "Structural Separation and Access in Telecommunications Markets," CESifo Working Paper Series 1554, CESifo Group Munich.
  5. Russell Pittman, 2003. "Vertical Restructuring (or Not) of the Infrastructure Sectors of Transition Economies," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 5-26, March.
  6. Pittman Russell, 2005. "Structural Separation to Create Competition? The Case of Freight Railways," Review of Network Economics, De Gruyter, vol. 4(3), pages 1-16, September.
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