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Access regulation and geographic deployment of a new generation infrastructure

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  • Flacher, David
  • Jennequin, Hugues
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    Abstract

    This article addresses the impact of regulatory policy on levels of infrastructure deployment and derived welfare in the telecommunications sector. The model considers two potentially coexisting and partially competing techniques (the old ADSL - Asymmetric Digital Subscriber Line - technique) - and the new FTTH - Fibre To The Home - one). Competition is supposed to be high on the ADSL market because of already existing regulation. We assume that two types of operators are competing in order to provide FTTH services: those that build and operate the new infrastructures (OPf1) and those that just buy access to them (OPf2). In our model, the level of investment is decided at stage 1 and the access price is decided at stage 2. At stage 3, OPf1 and OPf2 compete à la Cournot. This common framework allows us to show that the regulation defining access price in order to maximise infrastructure deployment is strictly equivalent to the case in which no regulation applies. We also derive from the model that these two types of regulation induce higher social welfare, but lower numbers of FTTH consumers than cost-oriented access regulation. Finally, we show that the level of infrastructure deployment (as well as social welfare and number of FTTH consumers) will be at its highest if both investment and access price decisions are taken by the regulator. This suggests that the social optimum will be achieved through a call-for-tender process including deployment and access prices requirements. --

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    Bibliographic Info

    Paper provided by International Telecommunications Society (ITS) in its series 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All with number 72537.

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    Date of creation: 2012
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    Handle: RePEc:zbw:itsb12:72537

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    Web page: http://www.itsworld.org/

    Related research

    Keywords: Access regulation; geographic deployment; network industries; telecommunications; investment.;

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    References

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    1. Fudenberg, Drew & Tirole, Jean, 1985. "Preemption and Rent Equilization in the Adoption of New Technology," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 383-401, July.
    2. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-90, March.
    3. Vareda, João & Hoernig, Steffen, 2007. "The race for telecoms infrastructure investment with bypass: Can access regulation achieve the first best?," FEUNL Working Paper Series wp524, Universidade Nova de Lisboa, Faculdade de Economia.
    4. M. Bourreau & P. Dogan & M. Manant, . "A critical review of the ladder of investment approach," Working Paper 33654, Harvard University OpenScholar.
    5. Foros, Oystein & Kind, Hans Jarle, 2003. "The Broadband Access Market: Competition, Uniform Pricing and Geographical Coverage," Journal of Regulatory Economics, Springer, vol. 23(3), pages 215-35, May.
    6. Keiichi Hori & Keizo Mizuno, 2009. "Competition schemes and investment in network infrastructure under uncertainty," Journal of Regulatory Economics, Springer, vol. 35(2), pages 179-200, April.
    7. Duarte Brito & Pedro Pereira & João Vareda, 2008. "Can Two-Part Tariffs Promote Efficient Investment on Next Generation Networks?," Working Papers 34, Portuguese Competition Authority.
    8. Hori, Keiichi & Mizuno, Keizo, 2006. "Access pricing and investment with stochastically growing demand," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 795-808, July.
    9. Pindyck Robert S., 2007. "Mandatory Unbundling and Irreversible Investment in Telecom Networks," Review of Network Economics, De Gruyter, vol. 6(3), pages 1-25, September.
    10. Faulhaber, Gerald R & Hogendorn, Christiaan, 2000. "The Market Structure of Broadband Telecommunications," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 305-29, September.
    11. Hoernig, Steffen, 2005. "Should Uniform Pricing Contraints be Imposed on Entrants?," CEPR Discussion Papers 5052, C.E.P.R. Discussion Papers.
    12. Tilman Klumpp & Xuejuan Su, 2010. "Open Access and Dynamic Efficiency," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 64-96, May.
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    Cited by:
    1. Balmer, Roberto, 2013. "Geographic Regulation and Cooperative Investment in Next Generation Broadband Networks - A Review of Recent Literature and Practical Cases," MPRA Paper 54080, University Library of Munich, Germany.

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