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Investment under uncertainty and regulation of new access networks

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  • Inderst, Roman
  • Peitz, Martin

Abstract

Contractual and regulatory provisions for access affect incentives to invest in an upgraded network and, in particular, a next-generation access network. Investment decisions are made under uncertainty and have to be made over time. This papers provides a framework for taking uncertainty, risk aversion, and the timing of investment explicitly into account. First, it evaluates various access price policies in a framework in which the incremental value over the legacy network is uncertain. Second, introducing risk aversion, the access price structure turns out to be critical for the risk profile of the investing telecom operator and of the access-seeking alternative operator. Third, some implications of the time structure of access payments are derived.

Suggested Citation

  • Inderst, Roman & Peitz, Martin, 2013. "Investment under uncertainty and regulation of new access networks," ZEW Discussion Papers 13-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:13020
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    References listed on IDEAS

    as
    1. Nitsche, Rainer & Wiethaus, Lars, 2011. "Access regulation and investment in next generation networks -- A ranking of regulatory regimes," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 263-272, March.
    2. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2013. "Cooperative Investment, Uncertainty and Access," CEPR Discussion Papers 9376, C.E.P.R. Discussion Papers.
    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    4. Guthrie, Graeme, 2012. "Regulated prices and real options," Telecommunications Policy, Elsevier, vol. 36(8), pages 650-663.
    5. Bourreau, Marc & Cambini, Carlo & Doğan, Pınar, 2012. "Access pricing, competition, and incentives to migrate from “old” to “new” technology," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 713-723.
    6. Brito, Duarte & Pereira, Pedro & Vareda, João, 2012. "Incentives to invest and to give access to non-regulated new technologies," Information Economics and Policy, Elsevier, vol. 24(3), pages 197-211.
    7. 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.
    8. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    9. Nicholas Economides, 1999. "Real Options and the Costs of the Local Telecommunications Network," Working Papers 99-11, New York University, Leonard N. Stern School of Business, Department of Economics.
    10. Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, Elsevier.
    11. Inderst, Roman & Peitz, Martin, 2012. "Network investment, access and competition," Telecommunications Policy, Elsevier, vol. 36(5), pages 407-418.
    12. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    13. Steffen Hoernig & Ingo Vogelsang, 2012. "The Ambivalence of Two-Part Tariffs for Bottleneck Access," FEUNL Working Paper Series wp568, Universidade Nova de Lisboa, Faculdade de Economia.
    14. 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.
    15. Vareda João & Hoernig Steffen, 2010. "Racing for Investment under Mandatory Access," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, July.
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    Cited by:

    1. Joan Calzada & Begoña García-Mariñoso & Jordi Ribé & Rafael Rubio & David Suárez, 2018. "Fiber deployment in Spain," Journal of Regulatory Economics, Springer, vol. 53(3), pages 256-274, June.
    2. Keizo Mizuno & Ichiro Yoshino, 2015. "Overusing a bypass under cost-based access regulation: underinvestment with spillovers," Journal of Regulatory Economics, Springer, vol. 47(1), pages 29-57, February.
    3. Avenali, Alessandro & Matteucci, Giorgio & Reverberi, Pierfrancesco, 2014. "Broadband investment and welfare under functional and ownership separation," Information Economics and Policy, Elsevier, vol. 28(C), pages 70-82.
    4. Anna D'Annunzio & Pierfrancesco Reverberi, 2015. "Content providers and co-investment in broadband networks," DIAG Technical Reports 2015-05, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    5. repec:eee:indorg:v:56:y:2018:i:c:p:78-106 is not listed on IDEAS
    6. Christopher Decker, 2016. "Regulating networks in decline," Journal of Regulatory Economics, Springer, vol. 49(3), pages 344-370, June.

    More about this item

    Keywords

    NGA; investment under uncertainty; access price rule; telecommunications;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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