Regulation in the telecommunications markets: Technological dynamics and competition potential

Modern communications networks contribute to the dissemination of knowledge and information. For this reason they are crucial for the economic development of industrialised countries such as Germany. A particular challenge, as well as opportunity for providers, is the conversion of network architecture, for coping with current and future data flows, from the traditional language-based telephone network to the IP-based communications network. From a technological-economic perspective, this article examines the competition potentials as well as the role of a sector-specific regulation in this transformation process. The article follows the argumentation that new competitors only enter an expanding market. New infrastructure-based competitors, however, must have the opportunity at an early stage to capture market shares in the growing market for data transfer. Because of the incremental transition to an IP-based communications network, the task of regulation is to guarantee new rivals access to the elements of the traditional networks of the established providers. The regulation of access to the new networks can only be justified in sparsely populated areas in which due to high construction costs and small demand no infrastructure-based competition is to be expected. In this case the public sector could also participate in the financing of the network in order to guarantee the creation of the network itself. In urban areas, however, competition between a few head-on-head competitors creates stimulus for investment in the new access networks.