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Regulation of telecommunication and deployment of broadband

  • Machiel van Dijk


  • Machiel Mulder

This memorandum explores the question whether regulation in telecommunications encourages or hampers the development of new technologies. Contrary to other network industries, the telecommunications industry is more and more characterized by several, competing networks, such as cable, copper, and wireless. Regulation is, however, still needed as in several components of telecommunications sources of market power remain. The key issue in the regulation of access to a network is dealing with the possible trade-off between static efficiency and dynamic efficiency. Favourable conditions for access to the network contribute to allocative efficiency and productive efficiency, but can negatively affect incentives for investments in upgrading of existing infrastructures and developing new ones. In the Netherlands, regulation of the telecommunication industry is designed to enhance competition between alternative infrastructures without affecting the technology choice of both incumbents and entrants. In the market for unbundled access to the local loop and the market for high quality wholesale access, a trade-off exists between static efficiency and dynamic efficiency. Regulated access tariffs, which are based on average costs, seem to be a good compromise between static and dynamic efficiency. Tariffs for access to the local loop reflect actual costs of the existing copper infrastructure, giving entrants incentives to make efficient make-or-buy decisions. In addition, the threat of infrastructure competition in the local loop, as well as the service-based competition between providers using different infrastructures, i.e. copper and cable, provide incentives for the incumbent to increase efficiency. Our overall conclusion is that Dutch regulation of the telecommunication industry gives efficient incentives for technological developments such as the deployment of broadband. See also: Do market failures hamper the perspectives of broadband?

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Memorandum with number 131.

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Date of creation: Dec 2005
Date of revision:
Handle: RePEc:cpb:memodm:131
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  1. Canoy, M.F.M. & de Bijl, P.W.J. & Kemp, R., 2003. "Access to telecommunications networks," Discussion Paper 2003-007, Tilburg University, Tilburg Law and Economic Center.
  2. Fink, Carsten & Mattoo, Aaditya & Rathindran, Randeep, 2001. "Liberalizing basic telecommunications : the Asian experience," Policy Research Working Paper Series 2718, The World Bank.
  3. Machiel van Dijk & Bert Minne & Machiel Mulder & Henry van der Wiel & J. Poort, 2005. "Do market failures hamper the perspectives of broadband?," CPB Document 102, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Paul de Bijl & Marcel Canoy & M. Bennett, 2001. "Future policy in telecommunications: an analytical framework," CPB Document 5, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  6. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
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