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Type of CLEC Entry

Type of CLEC Entry

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Article
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This paper develops and simulates a dynamic model of strategic telecom competition. The goal is to understand how regulatory policy, particularly relative to lease charges for local network elements, affects telecom competition, investment, retail prices, and consumer welfare. The model assumes two products, local voice service and data (broadband)...

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The emergence of new digital technologies, such as the Internet and new business models such as over-the-top (OTT) operators that utilize them, has transformed the media and broadcasting industries. As advanced technologies and business models are adopted, convergence between the broadcasting and telecommunication ("telecom") sectors has become a c...

Citations

... There has been a debate on whether regulatory regimes based on mandatory unbundling and the sharing of incumbents' facilities provide longrun welfare gains for consumers. Some studies show overall gains from mandatory unbundling (Clarke et al., 2004;Ford and Pelcovits, 2002;Willig et al., 2002), while others show reduced investment and welfare losses in the long run (Crandall et al., 2004;Jorde et al., 2000). Other studies estimate the consumer welfare benefits of entry into local markets (Economides et al., 2008) and the impact of new entry on service prices (Knittel, 2004), as well as on variety of services (Greenstein and Mazzeo, 2003). ...
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In this paper we provide an overview of the Brazilian regulatory framework for telecommunications, emphasizing the policies and models adopted for setting interconnection and access prices. In particular, we show how the regulations on interconnection and access services have evolved over time since the liberalization of the telecommunications sector (from July 1997 to December 2012), describe the two costing methodologies adopted, and formulate alternative approaches to address the regulatory challenges associated with the pricing/costing mechanism used, the target balance between service-based and facilities-based competition, and the impact of real options on the cost-based prices of regulated telecommunications services.
... There has been a great debate on whether regulatory regimes based on mandatory unbundling and the sharing of incumbents' facilities provide long-run welfare gains for consumers. Some studies show overall gains from mandatory unbundling (Clarke et al., 2004;Ford & Pelcovits, 2002;Willig et al., 2002), while others show reduced investment and welfare losses in the long run (Crandall et al., 2004;Jorde et al., 2000). Other studies estimate the consumer welfare benefits of entry into local markets (Economides et al., 2008) and the impact of new entry on service prices (Knittel, 2004), as well as on variety of services (Greenstein & Mazzeo, 2003). ...
Thesis
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With the goal of increasing competition in the telecommunications sector, regulatory authorities around the world have adopted cost-based prices for network interconnection and access services. The process of introducing competition has not been easy and many issues have arisen in recent years related to which facilities should be made available by the incumbent carriers, and on what terms and conditions. One of these issues, not yet addressed by the regulatory authorities, is the consideration of the value of the option to invest when calculating cost-based prices of regulated services. The pricing formula currently used by the regulators ignores the value of the option to productively invest at some time in the future. This thesis proposes a model and methodology for valuing the option to delay network investment decisions and calculating cost-based prices of regulated telecommunications services, taking into account the demand and technological uncertainties in telecommunications networks. In a typical cost study, the telecommunications network is represented by a list of network elements specifically dimensioned to meet the forecast demand for all telecommunications services, where each network element is an identifiable part of the network infrastructure (e.g., the local loop), for which it can be assigned a single cost driver. Different network elements are subject to different demand and technological uncertainties. For example, switches and transmission equipment are subject to faster technological substitution than local loop and transmission facilities. In this thesis, I calculate the option value multiples for the decisions to invest in three main network elements, each representing a different part of the Brazilian fixed telecommunications network (subject to different technological and demand uncertainties), and estimate the impact of these option value multiples on the average unitary cost of each network element. This thesis innovates in several aspects. First, because different network elements are subject to different demand and technological uncertainties, a markup factor is calculated for each main network element. Second, the value of the option to invest in each network element is modeled as a function of two stochastic variables: the element’s total variable profit and the cost of new investment in the element. Third, technological uncertainty is modeled using two complementary approaches: technology obsolescence of used equipment and technology evolution of new equipment. Fourth, the value of future replacement options is considered, allowing for the resizing of network capacity as equipment elements are replaced. The demand and technological uncertainties associated with each network element are modeled through the use of three stochastic processes: the flow of total variable profit (geometric Brownian motion), the depreciation of used asset (Poisson decay process), and the cost of modern equivalent asset (geometric Brownian motion). They all fit together into a neat and simple model that calculates the option value multiple for each network element. A constant risk-free interest rate has been assumed to derive the stochastic differential equations that the real option values must satisfy, although interest rate uncertainty has been investigated and interest rate volatilities have been calculated for different maturities/terms. This thesis proposes a method for constructing the Brazilian inflation coupon curve using a combination of traditional nonlinear optimization algorithm and a genetic algorithm specifically developed for that purpose. There has been a good deal of debate about which markup factor (if any) should be applied to the investment cost component of a network investment decision in order to reflect the value of the killed option. Some authors say the real option value is negligible and should be ignored, as in Pelcovits (1999), while others calculate markup values that are quite significant, as in Hausman (1999) and Pindyck (2005). This thesis shows that the markup values can be negligible for some network elements and quite significant for others. After applying the markup factors, network costs should be assigned to services on the basis of how much each service uses each network element. The impact of the option value multiples on the cost-based prices of regulated telecommunications services will depend on how much each service uses each network element. The proposed model and methodology address a problem left unsolved over the past 14 years and might become a landmark in regulatory cost modeling and cost-based access pricing. Although I focus on telecommunications, model and methodology can be adapted for application to other network industries as well.
... providers within a zip code may seriously misrepresent competitive options available to the totality of residents within that zip code … [but] there is no practical alternative to using the FCC data in assessing broadband availability. " A related literature looks at policies that narrow the digital divide by affecting Internet adoption and prices. Clarke et al. (2004) model the response of telecom investment, retail prices, and consumer behavior to regulatory policies and conclude that FCC-proposed rates for leasing access lines from incumbent providers to competitors would lower consumer prices and raise both adoption levels and investment. Wallsten (2005) looks at state-level differences in broadba ...
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Governments justify support of Internet diffusion on two grounds: (1) to overcome a persistent digital divide in broadband availability and (2) to facilitate online activities that are socially or economically desirable. This paper assesses both of these arguments. Using individual-level data from Forrester Research, the analysis finds significantly lower residential broadband adoption in lower-income and lower-density zip codes, controlling for individual characteristics. Further tests show that lower adoption in these areas is evidence of a persistent digital divide in availability. The analysis then assesses how broadband adoption changes individuals’ usage of online activities. Broadband adoption increases individuals’ frequency of researching health information online, but there is no evidence that broadband adoption increases usage of online job sites or online government services. Localities currently considering municipal wireless (Wi-Fi) initiatives should focus on digital divide justifications rather than expecting to raise usage of a wide range of online activities perceived to be socially desirable.
... Zolnierek et al. (2001) also support the outcome that a new local exchange competitor is more likely to enter into highly populated urban areas. Since size is associated with the local demand potential, a higher local demand potential with high income and high population density tends to an increase of CLEC's entry (Clarke, Hassett, Ivanova & Kotlikoff, 2004; Rosston & Wimmer, 2001). Clarke et al. (2004) revealed that there was additional CLEC's entry in both high income and high density markets. ...
... the outcome that a new local exchange competitor is more likely to enter into highly populated urban areas. Since size is associated with the local demand potential, a higher local demand potential with high income and high population density tends to an increase of CLEC's entry (Clarke, Hassett, Ivanova & Kotlikoff, 2004; Rosston & Wimmer, 2001). Clarke et al. (2004) revealed that there was additional CLEC's entry in both high income and high density markets. Rosston and Wimmer (2001) also found that CLECs are more likely to enter into high income and densely populated markets. This positive relationship between market size and new entry can be applied to the broadband market as well, indicating tha ...
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This paper compares barriers to entry in the broadband markets between the U.S. and South Korea. First, it explores economic conceptions of barriers to entry from the economics literature. Second, it speculates on how the conception of barriers to entry has been dealt with in the telecommunications industry. It clarifies the various industrial factors that could prevent, or make it difficult, to successfully enter the residential telecommunications market. Third, it introduces an analytical framework that can be adopted for evaluating the barriers to entry. Fourth, employing that framework, it examines the broadband markets in the U.S. and in South Korea, focusing on barriers to entry in multiple broadband access platforms. Both the U.S. and South Korea have shown greater barriers to entry in wireline broadband markets such as cable modem and DSL compared to wireless broadband when it comes to a facilities-based entry. South Korea has offered more opportunity to non-dominant ISPs as new entrants and thus, has been able to facilitate more vibrant competition nationwide. This paper concludes with an analysis of the barriers to entry for alternative broadband access platforms in residential high speed Internet services, more specifically, wireless access technologies, including other economic and policy factors in the US and South Korea. The sluggish progress of intermodal and intramodal market competition explains a part of the sluggish demand in the residential high speed Internet access market in the U.S., while the South Korean market was able to grow rapidly due to fierce competition in the market, mostly facilitated by the Korean government's open access rule and policy choices more favorable to new entrants rather than to the incumbents. Furthermore, near monopoly control of the residential communications infrastructure by cable operators and telephone companies manifests itself as relatively high pricing and lower quality in the U.S. The more favorable terms from which the dominant providers have benefited, and government's deregulation, may limit business opportunities for other Internet service providers.
... UNE-P regulations were targeted at voice competition they did not directly affect broadband 8 The role of UNE regulations on development of traditional telecommunications has been similarly controversial. Some believe they were crucial in promoting competition (e.g., Clarke, et al. 2004 ...
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High-speed, or broadband, access to the Internet is becoming ubiquitous, but some policymakers are concerned that broadband penetration in the United States is increasing too slowly, especially compared to other countries. As a result, cities, states, and the federal government are adopting policies intended to quicken broadband growth. These policies include attempts to streamline rights-of-way laws, telecommunications unbundling regulations, subsidies, and direct municipal broadband provision. To date, however, little empirical research has explored whether these policies, especially at the state level, are effective.In this paper I combine data from several publicly-available sources to test the effects of a number of policies.The analysis reveals that most state-level policies are ineffective. Universal service mechanisms and programs targeted at "underserved" areas do not boost broadband penetration and may even slow it, possibly by giving an artificial advantage to one type of provider over another.Likewise, tax incentives appear to have no impact.Laws limiting municipal deployment of broadband are not statistically significantly correlated with broadband penetration. Other policies, however, do appear to affect broadband penetration. Access to public rights-of-way by broadband providers is strongly correlated with penetration. Telecom unbundling regulations also affect penetration: the share of telephone lines provided under UNE-P regulations is negatively correlated with penetration, but resold lines are positively correlated with it. Some programs targeting rural access may have some positive impact.Subsidies from USDA's Rural Development broadband program are not correlated with increased rural access to broadband, but subsidies from USDA's broader telecommunications program are, though the analysis suggests that it is probably not a cost effective way to increase broadband access.
... Zolnierek et al. (2001) also support the outcome that a new local exchange competitor is more likely to enter into highly populated urban areas. Since size is associated with the local demand potential, a higher local demand potential with high income and high population density tends to an increase of CLEC's entry (Clarke, Hassett, Ivanova & Kotlikoff, 2004;Rosston & Wimmer, 2001). Clarke et al. (2004) revealed that there was additional CLEC's entry in both high income and high density markets. ...
... Since size is associated with the local demand potential, a higher local demand potential with high income and high population density tends to an increase of CLEC's entry (Clarke, Hassett, Ivanova & Kotlikoff, 2004;Rosston & Wimmer, 2001). Clarke et al. (2004) revealed that there was additional CLEC's entry in both high income and high density markets. Rosston and Wimmer (2001) also found that CLECs are more likely to enter into high income and densely populated markets. ...
Article
Full-text available
Abstract This paper compares ,barriers to entry in the broadband ,markets between ,the U.S. and South Korea. First, it explores economic conceptions of barriers to entry from the economics literature. Second, it speculates on how the conception of barriers to entry has been dealt with in the telecommunications industry. It clarifies the various industrial factors that could prevent, or make it difficult, to successfully enter the residential telecommunications market. Third, it introduces an analytical ,framework ,that can be adopted for evaluating the barriers ,to entry. Fourth, employing that framework, it examines the broadband markets in the U.S. and in South Korea, focusing on barriers to entry in multiple broadband access platforms. Both the U.S. and South Korea have shown,greater barriers to entry in,wireline broadband,markets such as cable modem,and DSL compared ,to wireless ,broadband ,when ,it comes ,to a ,facilities-based entry. South Korea has offered more opportunity to non-dominant ISPs as new entrants and thus, has been able to facilitate more ,vibrant competition ,nationwide. This paper concludes ,with an analysis of the ,barriers to entry for alternative broadband ,access platforms in residential high speed Internet services, more specifically, wireless access technologies, including other
... Hausman and Sidak (2004) Clarke, Hassett, Ivanova and Kotlikoff (2004), contrarily to the analysis above, ...
... The incumbent can argue that standard bureaucratic procedures have to be completed or that staff is particularly busy with other priorities. According to Clarke, Hassett, Ivanova and Kotlikoff (2004), CLECs also accuse ILECs of using slow and error prone manual rather than electronic hand-offs to proceed the hot-cut. Depending on the time spent, lack of willingness from the incumbent can be hardly verifiable or even observable for the ordering. ...
... According to Clarke, Hasset, Ivanova and Kotlikoff (2004), operational and cost impediments are greater in UNE-L compared to UNE-P, which is, in practice, a resale transaction. Indeed, the separation of specific elements of a network tends to be more complicated compared to the transaction with a full and integrated set of elements. ...
Article
Purpose The purpose of this paper is to examine economic debates over the conception of barriers to entry and speculates which definitions can be applicable to the telecommunications industry, more specifically, the residential broadband market. Also, it seeks to clarify the various industrial factors that could prevent or mar the success of entry into the residential telecommunications market and it also seeks to introduce an analytical framework that can be adopted for evaluating the barriers to entry. Design/methodology/approach The approach takes the form of a literature review. Findings It clarifies the various industrial factors that could prevent or mar the success of entry into the residential telecommunications market and introduces an analytical framework that can be adopted for evaluating the barriers to entry. Originality/value Although market entry barriers are crucial industrial factors that influence the market share and profit of firms already in the market, very little research has specifically examined barriers in the telecommunications and broadband industry.