Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities:Evidence from EU Telecoms
AbstractWe examine theoretically and empirically the relationship between access regulation, financial structure and investment decisions in network industries, analyzing if financial variables can be used as a strategic device to influence the regulator’s price setting decisions. Using a panel of 15 EU Public Telecommunication Operators (PTOs) over the period 1994-2005, we first investigate the determinants of regulated prices (both wholesale and retail), firm financial structure and investment, and then test the relationship between leverage, regulated charges and firm’s investment. However, our model suggests that if leverage influences the regulated access charges, then it will also impact competition in the downstream segment. Therefore, we also investigate the impact of the PTO’s leverage on market competition. Our results show that leverage positively affects regulated rates, as well as the PTOs’ investment rate, as predicted by Spiegel and Spulber (1994). Moreover, higher leverage also leads to higher access charges and an increase in leverage is followed by a decrease in the number of competitors and by an increase of the incumbent’s market share. This suggests that the strategic use of debt to discipline the regulator’s lack of commitment within a vertically integrated network industry may somewhat impair or delay competition in the retail segment, but has a favorable counterpart in mitigating the underinvestment problem.
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Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2009/68.
Date of creation: 10 Dec 2009
Date of revision:
L51; G31; G32; L96; Telecommunications; Access Pricing; Capital Structure; Leverage; Fixed Investment; Competition;
Other versions of this item:
- Carlo Cambini & Laura Rondi, 2009. "Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities: Evidence from EU Telecoms," EUI-RSCAS Working Papers 68, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-COM-2010-03-20 (Industrial Competition)
- NEP-REG-2010-03-20 (Regulation)
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