Regulation and Investment in Telecom Network Infrastructure Facilities: The Recent Developments and Debates

Ben Dkhil, Inès (2014): Regulation and Investment in Telecom Network Infrastructure Facilities: The Recent Developments and Debates.

Abstract

The regulation has the greatest role in forcing the introduction and the establishment of competition in the fixed telecom markets by facilitating the entrants’ access conditions to the incumbent’s infrastructure facilities (the local loop). Recently, the sole way to ensure the development of telecom industry consists to promote innovation and investment in network infrastructure technologies. This paper provides a critical review of both recent theoretical and empirical literature that address the issues of regulation on innovation and investment in the fixed telecommunication in-frastructures.

• Item Type: MPRA Paper
• Language: English
• Keywords: bottleneck, access regulation policies, investment in network upgrade, service-based competition, facility-based competition.
• Subjects: K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation

References

[1] Aghion, P., Akcigit, U., and Howitt, P. (2013). “What do we learn from Schumpeterian growth theory?” A paper presented at the Nobel Sympsium on Growth and Development, NBER and CIFAR, 1-43. Available at: <http://scholar.harvard.edu/files/aghion/files/what_do_we_learn_0.pdf>.

[2] Aghion, P., and Howitt, P. (1992). “A model of growth through creative destruction”. Econometrica 60 (2), 323-351.

[3] Aghion, P., Bloom, N., Blundell, R., Griffith, R., and Howitt, P. (2005). “Competition and innovation: an inverted-U relationship”. The Quarterly Journal of Economics 120 (2), 701-728.

[4] Alesina, A., Nicoletti, G., Ardagna, S., and Schiantarelli, F. (2005). “Regulation and In-vestment”. Journal of the European Economic Association 3(4), 791-825.

[5] Arrow, K. (1962). “Economic welfare and the allocation of ressorces to invention”. In K. J. Arrow, The Rate and Direction of Economic Activity, Nelson, Princeton University Press, 609-626. Available at:<http://www.nber.org/chapters/c2144.pdf>.

[6] Avenali, A., Matteucci, G., and Reverberi, P. (2010). “Dynamic access pricing and in-vestment in alternative infrastructures”. International Journal of Industrial Organization, 28(2), 167-175.

[7] Bacache, M., Bourreau, M., and Gaudin, G. (2013). “Dynamic entry and investment in new Infrastructures: empirical evidence from the fixed broadband industry”. Telecom ParisTech Working Paper N° ESS-11-01, 1-35. Available at SSRN-id2314508.

[8] Baranes, E, Ben Dkhil, I., Jebsi, K. (2012) « Access pricing, investment and competition in vertically-related industry structures”. Presented at the « 29èmes Journées de Mi-croéconomie Appliquée”, 07 Juin 2012, Brest/france. Available at : http://www.jma2014.fr/fichiers2012/256/Baranes.E_Ben.Dkhil.I_Jebsi.K.pdf

[9] Bauer, J. (2010). “Regulation, public policy, and investment in communications infra-structure”. Telecommunication Policy 34, 65-79.

[10] Bauer, J. M., and Shim, W. (2012). “Regulation and innovation in Telecommunications”. Quello Center Working Paper 01-2012, 1-26. Presented at Scientific Seminar entitled "Communications & Media Markets: Emerging Trends & Policy Issues", May 18-19, 2012. Available at SSRN-id2128538 since August 12, 2012.

[11] Baumol, W. (1977). “On the proper cost tests for natural monopoly in a multiproduct industry”. American Economic Review 67(5), 809-822.

[12] Ben Dkhil, I. (2014 a): “Computing an overall Index for regulatory reforms required in the fixed telecommunication segment over the world”, International Journal of Innovation and Scientific Research, ISSN 2351-8014 Vol. 13 No. 2 Feb. 2015, pp. 414-431.

[13] Ben Dkhil, I. (2014 b). “Investment in Fixed Broadband Networks and Access Regulation in Developed and Developing Countries: Panel Data Applications”. Available at SSRN: <http://ssrn.com/abstract=2511514> or <http://dx.doi.org/10.2139/ssrn.2511514> and at the Munich Personal RePEc Archive (MPRA) : http://mpra.ub.uni-muenchen.de/59337/, presented in « Coopération régionale, transformations structurelles et insertion internationale des pays d'Afrique du Nord », 01 Novembre 2014, Hammamet/ Tunisia, and accepted to be presented at « 16th International Symposium on Econometrics, Operations Research and Statistics (ISEOS 2015), Edirne-Turkey, May 7-12, 2015 ».

[14] Bijl, P. (2005). “Structural separation and access in telecommunications markets”. Journal of Network Industy 6(2), 95-114.

[15] Bouckaert, J., Dijk, T. v., and Verboven, F. (2010). “Access regulation, competition, and broadband penetration: an international study”. Telecommunication Policy 34, 661-671.

[16] Bourreau, M., and Dogan, P. (2006). “"Build-or-buy" strategies in the local loop”. Ameri-can Economic Review 96(2), 72-76.

[17] Bourreau, M., and Drouard, J. (2010). “Stepping stone or stonewall? Progressive entry and the incentives to invest in alternative infrastructures”. Telecom ParisTech Working Paper N° ESS-10-0, 1-35. Available at SSRN-id1662402.

[18] Bourreau, M., Dogan, P., and Manant, M. (2010). “A critical review of the "Ladder of Investment" approach”. Telecommunication Policy 34, 683-696.

[19] Bourreau, M., Dogan P., and Manant, M. (2011). “Incitations à l'entrée et incitations aux investissements dans le secteur des télécoms”. Revue Française d'Economie 25 (4). 147-181.

[20] Boylaud , O., and Nicolleti , N. (2001). “Regulation, market structure and performance in telecommunications”. OECD Economic Studies N°32, 99-142. Available at:< http://www.oecd.org/eco/outlook/2736298.pdf>.

[21] Briglauer, W., Ecker, G., and Gugler, K. (2013). “The impact of infrastructure and service-based competition on the deployment of next generation access networks: recent ev-idence from the European member States”. Infromation Economics and Policy 25 , 142-153.

[22] Brito, D., Pereira, P., and Vareda, J. (2010). “Can two-part tariffs promote efficient in-vestment on next generation networks?” International Journal of Industrial Organization 28, 323-333.

[23] Brito, D., Poreira, P., and Vareda, J. (2011b). “Can vertical separation reduce non-price discrimination and increase welfare?” CEFAGE-UE Working Paper N° 2011/06. Availa-ble at: <http://www.cefage.uevora.pt/en/content/download/2366/31772/file/2011_06.pdf>.

[24] Bruno, C. (2012). “Functional separation and economics of vertical integration in European fixed telecoms”. Working Paper N° 03/2012. Available at: <http://www.hermesricerche.it/elements/WP_12_03_CB.pdf>

[25] Cambini, C., and Jiang, Y. (2009). “Broadband investment and regulation: A literature review”. Telecommunication Policy 33, 559-574.

[26] Cambini, C., and Valleti, T. (2004). “Access charges and quality choice in competing networks”. Information Economics and Policy 16, 391-409.

[27] Cave, M. (2006 a). “Encouraging infrastructure competition via the Ladder of Invest-ment”. Telecommunication Policy 30, 223-237.

[28] Cave, M. (2006 b). “Six degrees of separation”. Communications and Strategies, N° 64, 4 th quarter, 89-102.

[29] Cave, M. (2010). “Snakes and ladders: unbundling in a next generation world”. Tele-communications Policy, 80-85.

[30] Cave, M., and Doyle, C. (1994). “Access pricing in network utilities in theory and prac-tice”. Utilities Policy 4 (3), 181-189.

[31] Cave, M., and Prosperetti, L. (2001). “European telecommunication infrastructures”. Oxford Review of Economic Policies 17(3), 416-431.

[32] Cave, M., Doyle, C. (2007). “Network separation and investment incentives in telecom-munications”. Discussion Chapter, EIRCOM, CMUR, Warwick Business School, 1-40. Available at: < http://www.kigeit.org.pl/FTP/ap/sot/07_11_12_podzial_2.pdf>.

[33] Chang, H., Koski, H., and Majumdar, S. K. (2003). “Regulation and investment in the telecommunications sector: policies and patterns in US and Europe”. Telecommunications Policy 27, 677-699.

[34] Coase, R. (1937). “The nature of the Firm”. Economica 4(16), 386-405.

[35] Crandall, R. W., Eisenach, J. A., and Ingraham, A. T. (2013). “The long-run effects of copper loop unbundling and the implications for fiber”. Telecommunications Policy 37, 262-281.

[36] Crandall, R., and Sidak, J. (2002). “Is structural separation of incumbent local exchange carriers necessary for competition?” Yale Journal on Regulation (19), 335-411.

[37] Crandall, R., Eisenach, J., and Litan, R. (2010). “Vertical separation of telecommunica-tions networks: evidence from five countries”. Federal Communication Low Journal 62(3), 492-540. Available at: < http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1563andcontext=fclj>.

[38] Culbertson, J., and Mueller, W. (1985). “The influence of market structure on technologi-cal performance in the food-manufacturing industries”. Review of Industrial Organization 2(1), 40-54.

[39] Denni, M., and Gruber, H. (2006). “The diffusion of broadband telecommunications: The role of competition”. Working Paper N°60, 1-24. Available at: < http://host.uniroma3.it/dipartimenti/economia/pdf/wp60.pdf>.

[40] Distaso, W., Lupi, P., and Maneuti, F. (2005). “Platform competition and broadband uptake: theory and empirical evidence from the European Union”. LBS 2005 Telecommunication conference and the 2004 EARIE and ITS conferences, 1-24. Available at: <http://128.118.178.162/eps/io/papers/0504/0504019.pdf>.

[41] Djiofack-Zebaze, C., and Keck, A. (2009). “Telecommunications services in Africa : the Impact of WTO commitments and unilateral Reform on sector performance and economic growth”. World Development 37(5), 919-940.

[42] FCC. (2009). “Next generation connectivity: A review of broadband Internet transitions and policy from around the world”. The Federal Communications Commission (FCC) Report. Available at:<http://cyber.law.harvard.edu/sites/cyber.law.harvard.edu/files/Berkman_Center_Broadband_Final_Report_15Feb2010.pdf>.

[43] Foros, Ø. (2004). “Strategic investments with spillovers, vertical integration and foreclo-sure in the broadband access market”. International Journal of Industrial Organization 22, 1-24.

[44] Friederiszick, H., Grajek, M., and Röller, L.-H. (2008). “Analyzing the Relationship be-tween Regulation and Investment in the Telecom Sector”. ESMT European School of Management and Technology, Schlossplatz 1, 10178 Berlin,Germany, 1-35. Available at: < http://www.econ.upf.edu/docs/seminars/grajek.pdf>.

[45] Gans, J., and King, S. (2004). “Access holidays and the timing of infrastructure invest-ment”. The Economic Record 80(248), 89-100.

[46] Gilbert, R. (2006). “Looking for Mr. Schumpeter: where are we in the competition-innovation debate?” Innovation Policy and the Economy 6, The MIT Press, 158-215. Available at: < http://www.nber.org/chapters/c0208.pdf>.

[47] Goettler, R., and Gordon, B. (2014). “Competition and product innovation in dynamic oligopoly”. Quantitative Marketing and Economics 12 (1), 1-42.

[48] Gonçalves, R., and Nascimento, Ã. (2010). “The momentum for network separation: A guide for regulators”. Telecommunications Policy 34, 355-365.

[49] Grajek, M., and Röller, L. -H. (2012). “Regulation and Investment in Network Industries: Evidence from European Telecoms”. Journal of Laws and Economics 55, 189-215.

[50] Greenstein, S., and Ramsey, G. (1998). “Market Structure, Innovation and Vertical Prod-uct Differentiation”. International Journal of Industrial Organization 16, 285-311.

[51] Grosso, M. (2006). “Determinants of broadband penetration in OECD nations”. Working Paper. Regulatory Development Branch, Australian Competition and Consumer Commission, 1-31. Available at: < http://www.networkinsight.org/verve/_resources/GrossoM.pdf>.

[52] Gruber, H., and Koutroumpis, P. (2012). “Competition enhancing regulation and diffusion innovation: the case of broadband networks”. Journal of Regulatory Economics 43 (2), 168-195.

[53] Hashmi, A. (2011). “Competition and innovation: The inverted-U relationship revisited”. Working Paper N°1101. Available at: <http://www.fas.nus.edu.sg/ecs/pub/wp/wp1101.pdf>.

[54] Heimeshoff, U. (2007). “Investment in telecommunications markets: evidence from OECD Countries”. Ruhr-University of Bochum. Available at: <http://www.uni-graz.at/socialpolitik/papers/Heimeshoff.pdf>.

[55] Howell, B., Meade, R., and O'Connor, S. (2010). “Structural separation versus vertical integration: lessons for telecommunications from electricity reforms”. Telecommunica-tion Policy 34, 392-403.

[56] Inui, T., Kawakami, A., and Miyagawa, T. (2008). “Do Competitive Markets Stimulate Innovation?” RIETI Discussion Paper Series 08-E-012, 1-42. Available at: < http://www.rieti.go.jp/jp/publications/dp/08e012.pdf>.

[57] Kotakorpi, K. (2006). “Access price regulation, investment and entry in telecommunica-tions”. International Journal of Industrial Organization 24, 1013-1020.

[58] Laffont, J. J., Tirole, J. (2000). “Competition in Telecommunications”. Cambridge, MIT Press.

[59] Li, W., and Xu, L. (2004). “The impact of privatization and competition in the telecom-munications sector around the world”. Journal of Law and Economics 47(2), Available at: < http://faculty.darden.virginia.edu/liw/papers/jle2004proof.pdf>.

[60] Li, Y. (2008). “Econometric evidence on the impacts of privatization, new entry, and independent industry regulator on mobile network penetration and expansion”. SSRN eLibrary. ESRC Centre for Competition Policy Working Paper N°08-35, 1-29. Available at SSRN: <http://ssrn.com/abstract=1316325>.

[61] London Economics (2006). “An Assessment of the Regulatory Framework for Electronic Communications-Groth and Investment in the EU e-communications sector”. The Euro-pean Commission Report. Available at: < http://www.estig.ipbeja.pt/~ac_direito/investment.pdf>.

[62] Loury, G. (1979). “Market structure and innovation”. The Quarterly Journal of Econom-ics 93(3), 395-408.

[63] Manenti, F., and Scialà, A. (2013). “Access regulation, entry and investment in telecom-munications”. Telecommunication Policy 37, 450-468.

[64] Martha, G. -M. (2005). “International broadband deployment: the impact of unbundling”. Communications and Strategies, 83-104.

[65] Mizuno, K., and Yoshino, I. (2012). “Distorted access regulation with strategic invest-ments : regulatory non-commitment and spillovers revisited”. Information Economics and Policy 24, 120-131.

[66] Mukoyama, T. (2003). “Innovation, Imitation and Growth with Cumulative Technology”. Journal of Monetary Economic 50, 361-380.

[67] Nardatto, M., Valleti, T., and Verboven, F. (2014). “Unbundling the incumbent: evidence from UK broadband”. CEPR Discussion Papers 9194, C.E.P.R. Discussion Papers, Avail-ableat:<http://feb.kuleuven.be/public/NDBAD83/Frank/Papers/Nardotto,%20Valletti%20&%20Verboven,%202014.pdf>.

[68] Nickell, S. (1996). “Competition and corporate prformance”. Journal of Political Econo-my 104(4), 71-102.

[69] OECD (2001). “Recommendation of the council concerning structural separation in regu-lated industries”. Available at: <http://www.oecd.org/dataoecd/24/49/25315195.pdf>.

[70] OECD (2003 b). “The Benefits and costs of structural separation of the local loop”. Working Party on Telecommunication and Information Services Policies. Available at: <http://www.oecd.org/dataoecd/39/63/18518340.pdf>.

[71] OECD (2006). “Report on Structural Separation”. OECD Journal of Competition Law and Policy 8(2), 1-51. Available at: <http://www.keepeek.com/Digital-Asset-Management/oecd/governance/report-on-structural-separation_clp-v8-art2-en>.

[72] OECD (2011 a). “Report on experiences with the the Structural separation”. OECD Re-port, 1-122. Available at: <http://www.oecd.org/daf/competition/50056685.pdf>.

[73] Oldale, A., and Padilla, J. (2004). “Form the state monopoly to the "investment ladder": competition policy and the NRF”. In “The pros and Cons of Antitrist in Deregulated Mar-kets”, Swedish Competition Authority series, 51-77. Available at: < http://www.konkurrensverket.se/upload/Filer/Trycksaker/Rapporter/Pros&Cons/rap_pros_and_cons_Deregulated_markets.pdf>.

[74] Sacco, D., and Schmutzier, A. (2011). “Is there a U-shaped relation between competition and investment”. International Journal of Industrial Organization 29, 65-73.

[75] Sarmento, P. (2011). “The Effects of vertical separation and access price regulation on investment incentives”. FEP Working chapters N°410. Available at: <http://www.fep.up.pt/investigacao/workingchapters/11.04.04_wp410.pdf>.

[76] Sarmento, P., and Brandão, A. (2007). “Access pricing: A comparison between full de-regulation and two alternative instruments of access price regulation, cost-based and re-tail-minus”. Telecommunications Policy 31, 236–250.

[77] Sarmento, P., and Brandão, A. (2009). “Next generation access networks: the effects of vertical spillovers on access and innovation”. FEP Working Papers (321). Available at :<http://www.fep.up.pt/investigacao/workingpapers/09.04.07_wp321.pdf>.

[78] Scherer, F. (1967). “Market Structure and the Employment of Scientists and Engineers”. American Economic Review 57(3), 524-531.

[79] Schumpeter, J. (1943). “Capitalism, Socialism and Democracy”. George Allen & Unwin (Publishers) Ltd 1976. Available at: < http://digamo.free.fr/capisoc.pdf>.

[80] Seo, D., and Shin, J. (2011). “The impact of incentive regulation on productivity in the US telecommunications industry: a stochastic frontier approach”. Information Economics and Policy 23 (1), 3-11.

[81] Stoneman, P., (2008). “Soft innovation: changes in product aesthetics and aesthetic products”. Presented at the 2008 Royal Economic Society Annual Conference, March 17 – 19, University of Warwick, 1-26. Available at:<https://research.mbs.ac.uk/INNOVATION/Portals/0/docs/seminar/Stonemansoftinnovationpaper.pdf>.

[82] Vareda, J. (2010). “Access regulation and the incumbent investment in quality-upgrades and in cost-reduction”. Telecommunications Policy 34, 697-710.

[83] Vareda, J. (2011). “Quality upgrades and bypass under mandatory access”. Journal of Regulatory Economics 40 (2), 177-197.

[84] Viani, B. E. (2006). “Vertical Separation, Monopoly, and its Consequences”. Internation-al Industrial Organization Conference, Boston. Available at: < http://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=IIOC2006&paper_id=486>.

[85] Wallsten, S. (2006). “Broadband and Unbundling Regulations in OECD Countries”. Working Paper 06-16. AEI-Brookings Joint Center for Regulatory Studies, 1150 17. Available at SSRN: <http://ssrn.com/abstract=906865>.

[86] Waverman, L., Meschi, M., Reillier, B., and Dasgupta, K. (2007). “Access regulation and infrastructure investment in the telecommunications sector: an empirical investigation”. LECG, Available at: < https://www.etno.eu/Portals/34/ETNO%20Documents/LECG_Final%20Report.pdf>.

[87] Williamson, O. (1985). “The Economic Institution of Capitalism”. TheFreePress,a Divi-sion of Macmillan.

[88] Zenhäusern, P., Telser, H., Vaterlaus, S., and Mahler, P. (2007). “Plaut Economics Regu-lation Index. Regulatory density index in telecommunications with particular considera-tion of investment incentives”. Plaut Economics. Available at: < http://www.econ.uzh.ch/staff/telser/publications/Regulatory-Index.pdf>.

[89] Zenhäeusern, P., Schneider, Y., Berner, S., and Vaterlaus, S. (2012 a). “Polynomics Regulation Index 2012- Regulatory Density in The Telecommunication Sector”. 23rd Eu-ropean Regional Conference of the International Telecommunication Society, Vienna, Austria, 1-4 July 2012. Available at: < http://www.econstor.eu/bitstream/10419/60399/1/720283744.pdf>.

[90] Zenhäeusern, P., Schneider, Y., Berner, S., and Vaterlaus, S. (2012 b). “Manual for the “Polynomics Regulation Index 2012” Data Set Polynomics”. Available at: < http://www.polynomics.ch/en/dokumente/Poylnomics-Regulation-Index-2012_Manual-for-the-data-set.pdf>.