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The European Electronic Communications Code: A critical appraisal with a focus on incentivizing investment in next generation broadband networks
Abstract
In September 2016, the European Commission (EC) published its proposal for a directive establishing the European Electronic Communications Code (EECC) – with one key aim being the provision of sufficient incentives for infrastructure investments into high-speed communication networks. Based on a detailed review of the theoretical and empirical literature of the most relevant regulatory measures – that is, co-investment models as well as different types of access regulation – we provide a critical appraisal of the respective provisions in the EECC. We find that, although the EECC can generally be seen as a step into the right direction, the expected effects on investment incentives as well as substantial implementation challenges in combination with a high degree of complexity of the envisaged measures contain substantial potential for improvement.
... Symmetric regulation, where it is not only the operators with significant market power (SMP) at national or large geographical scales which are subject to special access obligations, has been on the agenda for long. However, emphasis has hitherto been on asymmetric regulation, but during the past few years, symmetric regulation has gradually gained weight in different EU countries, and the new European Electronic Communications Code (Directive 2018(Directive /1972) also aims at putting more emphasis on symmetric regulation (de Streel and Larouche, 2016;Briglauer et al., 2017). ...
... A similar concern is found in the abovementioned paper by Briglauer et al. (2017), where it is formulated in a softer manner stating that the outcome of an enhanced emphasis on co-investment and symmetric regulation is uncertain and depends on how it will be implemented. As it is expressed in the 8 statements in the theory section of the present paper, the correlations are not obvious. ...
... The question raised by different observers (e.g. Briglauer et al. (2017) and Serentschy (2018)) is whether the new regulatory framework will achieve this in reality. With the many different interests of stakeholders that have had to be taken into consideration, the question is whether the Communications Code has become incoherent and points in too many different directions. ...
Symmetric telecoms regulation, where it is not only the operators with significant market power (SMP) at national or large geographical scales which are subject to special access obligations, has been on the agenda for long. However, emphasis has hitherto been on asymmetric regulation, but during the past few years, symmetric regulation has gradually gained weight in different EU countries, and the new European Electronic Communications Code also aims at putting more emphasis on symmetric regulation. The paper identifies the reasons behind symmetric access regulation possibly coming to play a more prominent role in EU telecoms regulation, the scope of symmetric regulation and how it is being articulated, and what the possible implications of symmetric regulation could be on the level of investment. The contribution of the paper is to discuss these different elements of understanding the potential role of symmetric regulation.
... Access regulation refers to the obligations for interconnection and interoperability requesting that operators offer connectivity to virtual operators and to other operators that lack part of the network as discussed in (Briglauer, Cambini, Fetzer, & Hüschelrath, 2017;Cambini & Jiang, 2009;Peitz & Valletti, 2016). Pricing regulation aims providing a minimum set of services to all end users at an affordable price and ensuring that wholesale and transfer prices do not distort competition, see e.g. ...
... Pricing regulation aims providing a minimum set of services to all end users at an affordable price and ensuring that wholesale and transfer prices do not distort competition, see e.g. (Briglauer et al., 2017;Cricelli et al., 2011). Competition regulation aims at ensuring that competition in the market is not restricted to reduce economic welfare and innovation, see (Briglauer et al., 2017;GSMA, 2015;Peitz & Valletti, 2015). ...
... (Briglauer et al., 2017;Cricelli et al., 2011). Competition regulation aims at ensuring that competition in the market is not restricted to reduce economic welfare and innovation, see (Briglauer et al., 2017;GSMA, 2015;Peitz & Valletti, 2015). Privacy and data protection refers to ensuring the rights of users to the processing of their data and privacy to protect confidentiality as well as security of services. ...
Future 5G networks aim at providing new high-quality wireless services to meet stringent and case-specific needs of various vertical sectors beyond traditional mobile broadband offerings. 5G is expected to disrupt the mobile communication business ecosystem and open the market to drastically new sharing based network operational models. 5G technical features of network slicing and small cell deployments in higher carrier frequencies will lower the investment barrier for new entrants to deploy local radio access networks and offer vertical specific services in specific areas and allow them lease the remaining required infrastructure on demand from mobile network operators (MNO) or infrastructure vendors. To realize the full vision of 5G to benefit the society and promote competition, innovation and emergence of new services when the 5G end-to-end network spans across different stakeholders administrative domains, the existing regulations governing the mobile communication business ecosystem are being refined. This paper provides a tutorial overview on how 5G innovations impact mobile communications and reviews the regulatory elements relevant to 5G development for locally deployed networks. This paper expands the recent micro licensing model for local spectrum authorization in future 5G systems and provides guidelines for the development of the key micro licensing elements. This local micro licensing model can open the mobile market by allowing different stakeholders to deploy local small cell networks with locally issued spectrum licenses ensuring pre-defined quality guarantees for the vertical sectors' case specific needs.
... В края на 2018 г. беше обнародвана Директива (EС) 2018/1972 за установяване на Европейски кодекс за електронни съобщения (ЕКЕС), която изменя и кодифицира четири от директивите на регулаторната рамка (Директиви 2002/19-22/ЕО). 1 ЕКЕС изисква от държавите на ЕС да въведат необходимите изменения в националните закони, които да се прилагат от 21 декември 2020 г. Сътрудничеството между националните секторни регулаторни органи се осъществява по реда на Регламент (ЕС) 2018/1971. ...
... Практическото приложение на задълженията се гарантира от механизъм за разрешаване на спорове от регулатора по административен ред и пред гражданските съдилища по съдебен ред. 9 Симетричната регулация като достъп до мрежови елементи е ограничена по отношение на конкретни части от мрежи или инфраструктура, които не е задължително да се контролират от предприятие със значително въздействие върху пазара, но са "тясно" място за навлизане на конкурентите. С ЕКЕС се поставя повече тежест на симетричната регулация [1] като един от методите за осигуряване на условия за изграждане на високоскоростни мрежи за пренос на данни (обичайно базирани на оптични влакна). Симетричната регулация на достъпа до мрежови елементи трябва да се прилага само спрямо ясно дефинирани случаи на оправдана намеса, когато не е необходима оценка на регулатора на конкретното искане. ...
In the electronic communications sector, the regulation of undertakings with significant market power is described as "asymmetric regulation" to indicate that obligations are imposed only on companies with leading position. The asymmetric regulation is subject to periodic review with a view to its complete abolition and replacement by the application of competition law. "Symmetric regulation" applies to all undertakings, regardless of their market position, and includes obligations to interconnect their networks, provide access to network elements, physical infrastructure, numbers, services and databases. From 2021, symmetric regulation is going to be the main method for ensuring and protecting competition in electronic communications markets in Bulgaria.
... Galperin, Mariscal, and Viecens (2013) observe a similar trend in Latin America; moreover, there are states like South Korea, which show a clear preference for developmental model (Falch & Henten, 2018;Larson & Park, 2014;Lemstra & Melody, 2014). The EC itself is showing first signs to acknowledge that strict cost-based access regulation is at odds with the goal of promoting investment in new infrastructures (Briglauer, Cambini, Fetzer, & Hüschelrath, 2017), a conclusion that appears to be largely in line with the older broadband-related literature as surveyed in Cambini and Jiang (2009). Now, public support is seen not only as being responsible for the regulatory framework where market forces thrive, but also as the main force behind infrastructure deployment and innovative boosting measure (Feijoo Gonzalez, Gómez Barroso, & Bohlin, 2011). ...
... With this critical appraisal of this key EC initiative to promote the required ICT infrastructures for the Gigabit Society, we contribute to the literature by pointing out the developmental characteristic of the measure, its relevance to promote a true multilevel governance in telecommunication and its novelty in the literature on co-investment (Briglauer et al., 2017). The study is also an early stage evaluation of the initiative, as it is essential for the EU institutions to make sure that the implementation of policies bring positive results, and the evaluation should occur during the entire process. ...
This paper analyses the WiFi4EU initiative, the measure proposed by the European Commission (EC) to speed up public access to Wi-Fi throughout Europe in the coming years by subsidising the infrastructure. We set out to analyse how these measures are incorporated into the EU policies for building a Gigabit Society and the EC's regulatory tradition, and what the impact is likely to be. This innovative initiative has been drawn up in a climate of uncertainties and delays, and will have an effect upon the network deployments strategies of operators and countries. The article puts all of this into the context of the current European regulation debate and conducts a techno-economic analysis to assess the expected impact of the initiative. We have observed a slight shift towards developmental models in the EC regulatory framework and a step ahead towards multi-level governance. Furthermore, the techno-economic analysis has revealed the limited extent of Community aid and the considerable variability of the equipment deployed and the expenditure involved. We have also highlighted the questionable formulation of the allocation mechanisms, and we have included certain examples or suggestions for improvement.
... When contextualising electronic communication, it is important to distinguish a technological definition with a focus on e.g. broadband transmission [18] and electronic communication in the service provision context of e-government, which is our focus. This second type of electronic communication is charactised by a larger amount of automatisation, real-time data validation and consequently an increased responsiveness [19]. ...
E-government strategies have come a long way and often undergone several revisions until now. The scientific community has identified building blocks, singular cases and especially success factors for their implementation. However, as of now there is little evidence regarding the legal implementation of these strategies. To contribute to this gap in the scientific literature, in this paper we examine three central European countries regarding the implementation of legal measures that have been suggested or implied by their current e-government strategies. To achieve a focused observation of the legal frameworks, we decided to concentrate on the element electronic communication, which has recently gained relevance in European e-government. To achieve this, we carry out a document analysis as well as a legal analysis of current strategic and legal documents for the three cases. Our results show differences in strategy formulation that are defined by overarching European trends as well as an existing legal basis for electronic communication between public authorities and citizens that will need to be adapted for new ways of electronic communication in the future.
... Telecom investment of networks construction is important in optimizing the performance and improving the quality of the networks. Briglauer [49] and Houngbonon [50] found that INVESTMENT has a positive effect on SUPPLY. Thus, this hypothesis is introduced to our conceptual model. ...
For the global telecom operators, mobile data services have gradually taken the part of traditional voice services to become the main revenue growth point. However, during the upgrading period of new generation networks (such as 5G), new mobile data services are still at the stage of exploration; the network capabilities and the application scenarios are unmatured. In this phase, it is incomplete and misleading to simply measure the performance of new services from one dimension, such as data traffic or revenue, and the measurement should be dynamically changed according to the development of the new services. Therefore, telecom operators want to improve the existing performance measurement from the aspect of integrity and dynamics. In this paper, we propose mobile-data-service development index (MDDI) and build a quantitative model to dynamic measure the overall performance of mobile data services. To approach a fuller understanding, we creatively bring investment indicators and networks reliability indicators into performance indicators system and discuss the relationships among subindices and the selection of outcome criteria in MDDI. In the part of empirical research, we use the model to analyze the dynamic characteristics of a new mobile data service in China and summarize the development strategies of every stage. The findings can also give guidelines for new services of 5G and other new generation networks in the future.
... Telecom investment of networks construction is important in optimizing the performance and improving the quality of the networks. Briglauer [33] and Houngbonon [34] found that INVESTMENT has a positive effect on SUPPLY. Thus, this hypothesis is introduced to our conceptual model. ...
For the global telecom operators, mobile data services have gradually taken the part of traditional voice services to become the main revenue growth point. However, during the upgrading period of new generation networks (Such as 5G), new mobile data services are still at the stage of exploration, the network capabilities and the application scenarios are unmatured. In this phase, it is incomplete and misleading to simply measure the performance of new services from one dimension, such as data traffic or revenue, and the measurement should be dynamically changed according to the development of the new services. Therefore, telecom operators want to improve the existing performance measurement from the aspect of integrity and dynamics. In this paper, we propose Mobile-data-service Development Index (MDDI), and build a quantitative model to dynamic measure the overall performance of mobile data services. To approach a fuller understanding, we creatively bring investment indicators and networks reliability indicators into performance indicators system, and discuss the relationships among subindices and the selection of outcome criteria in MDDI. In the part of empirical research, we use the model to analyze the dynamic characteristics of a new mobile data service in China, and summarize the development strategies of every stage. The findings can also give guidelines for new services of 5G and other new generation networks in the future.
... This part draws fromBriglauer, Cambini, Fetzer, and Hüschelrath (2017). ...
In recent years, and in line with EC plans, telecom operators have been facing the need to deploy high-speed, fiber-based infrastructure. What is the socio-economic impact of these new investments on growth and local development? What are their effects on the labor market outcomes, in terms of firm productivity and entrepreneurship? What is the role of regulation and competition in spurring the deployment and the adoption of ultra-fast broadband networks? In this survey, we review the existing literature on ultra-fast, fiber-based broadband network, devoting special attention to the results and to the methodology used in the most recent studies.
... The regime as a whole has undergone reform, with a new European Electronic Communications Code (EECC) finalized in June 2018 (Council of the European Union 2018). Key areas of dispute were: how to maintain incentives for investment in powerful new fixed and mobile technologies; how to extend the coverage of such networks to poorer and more sparsely populated areas, so as to avoid a 'digital divide'; and how best to harmonize regulation further (Briglauer et al. 2017). But many of the fundamental features of the 2003 system are still in place. ...
The European telecommunications sector has been radically transformed in the past 25 years: from a group of state monopolies to a set of increasingly competitive markets. In this paper we summarize how this process has unfolded—for both fixed and mobile telecommunications—by focusing on the evolution of the regulatory framework and by drawing some parallels with the evolution of the sector in the US. Given the major strategic importance of the sector, we highlight some of the challenges that lie ahead.
It is expected that several national gas markets in Europe will be merged in the near future. Such mergers provide network users transport alternatives, which may imply competition amongst transmission system operators (TSOs). TSOs are, however, regulated by default, as they are viewed to operate natural monopolies facing no effective competition. Using daily data for the German gas market over 2014–2018, this paper assesses market power for cross-border transport capacity based on the Residual Supply Index to analyse the need for regulation. To contribute to the debate on the future regulatory framework within the EU, we assess TSOs’ market power for cross-border capacity in a single merged German gas market. We find 15 German TSOs operating in seven relevant markets. In 85% of the cases, we do not find any significant market power for TSOs. In 20% of these cases, the absence of significant market power was related to the utilisation of excess storage capacity. Hence, we conclude that current regulatory constraints imposed on gas TSOs, such as tariff regulation, may be relaxed for cross-border capacity, when market mergers lead to effective inter-TSO competition.
The European Union (EU) harmonization has an evolving and dynamic nature. Different theoretical approaches (e.g., regulatory competition, coevolution, reflexive harmonization) are often echoed to delve into the EU harmonization. This article, going through these theories, endeavors to explain the harmonization discourse in the EU with a focus on the electronic communications sector. To understand the trajectory of the EU harmonization in this sector, two areas (“network access” and “spectrum regulation”) are selected as the subject-matter of the research. In conclusion, the legislative steps taken so far are found to restrict regulatory experimentation and innovation that this sector needs in the face of increasing challenges.
Among the biggest challenges rural areas currently face are the impact of demographic change and limited mobility offers. While younger people tend to either move to urban areas or have their own car at hand for satisfying everyday needs, elderly or people with compromised health suffer most from these challenges. They prefer to live in their habitual and familiar environment and remain mobile for as long as possible. To enable self-determined living in rural areas and to make rural areas more attractive as places to live, municipalities and regions with substantial rural character need to develop concepts and modern digital solutions to achieve these objectives. In this paper, we introduce stakeholder-driven requirements elicitation for a mobility platform, which supports local communities and citizens in remaining autonomous in their living. The aim of the mobile app is to intelligently match offers of different mobility providers (e.g. voluntary drivers, public transportation services, taxis drivers etc.) with citizens’ mobility demands in rural areas. Citizens needing a ride can find, book and pay the best offer for their journeys through the app. They can also rate the mobility service after its use. In the paper, we present the findings from 60 semi-structured face-to-face interviews with elderly in rural areas, thereby applying qualitative and quantitative content analysis. The empirical results were transcribed, categorized and analyzed quantitatively and qualitatively. We conclude with recommendations for the design and implementation of the mobility app.
The datafication of society is likely to increase in the upcoming 5G world and legal safeguards are necessary to ensure our privacy rights are protected. The purpose of this chapter is to analyze some of the unique characteristics of 5G and how the EU General Data Privacy Regulation (GDPR) stands as the last legal guardian against unwanted personal data violations. With the increase of data transfer speed and reliability comes the risk of privacy deterioration as 5G interlaces with ubiquitous computing creating a socio‐technical all‐encompassing global web of personal digital data extraction, storage, and transfer that will directly impact the way society organizes itself. The focus of this article is on identifying and understanding the possible threats to privacy protection that may be encountered in the deployment of 5G. Due to its low latency, reliability, high capacity, energy efficiency, and speedy data transmissions, 5G will directly impact the way we interact, communicate, work, and participate in society. For this breakthrough to take place a new generation of communication infrastructure is being designed, created, and implemented in many urban areas in Europe, North East Asia, North America, and other regions of the world. In addition, more intangible elements, such as software, protocols, and standards are being put in place. Not only the volume, velocity, and variety of digital data will increase in the 5G world, but also the value. However, in the fast approaching datafied world, privacy is rapidly becoming a cherished commodity rather than an inherited human right.
This paper examines the determinants of sector-specific regulation imposed on broadband markets related both to efficiency objectives of regulators and to those of narrowly defined interest groups. We test hypotheses derived from the normative and positive theoretical literature employing recent panel data on 27 European Union member states taking into account endogeneity of the underlying regulation and market structure variables. Our empirical specification employs three different estimators based on instrumental variables in order to identify causal effects. We find evidence supporting both regulators pursuing normative objectives and inefficiencies related to regulatory path dependence, bureaucracy goals and an inadequate consideration of competition from mobile broadband networks. Our results call for adjustments in the institutional design of the decision-making process under the current European Union regulatory framework.
Energy companies and other utility providers have been often involved in the provision of telecommunications services. Nevertheless, their contribution to broadband development has varied significantly over time. In the late 1990s, both local and national utilities in the European Union (EU) engaged in the provision of broadband networks, but only few of them managed to establish themselves as major broadband providers. More recently, new projects involving national utilities have been announced in several EU countries, opening new scenarios for utilities' contribution to Next Generation Access (NGA) development. This paper identifies and explores the factors affecting the entry and the success of utilities in the EU broadband market, through the comparison of four case studies from four EU countries (Germany, Italy, Sweden and the UK). The evolution of utility involvement in the EU broadband markets is assessed against the interaction of market, technology and policy factors, focusing on the impact of policy and regulatory measures. As a result, this paper provides fruitful insights into the relevance and effectiveness of public interventions in broadband markets. Across the four case studies, public support and public ownership emerged as the main drivers for the involvement of utilities in EU broadband markets, with regulatory measures and economies of scope exerting a limited and decreasing influence. However, the contribution of utilities has varied significantly across the cases studied, reflecting the different approaches taken at national and local level to support broadband development, in spite of the common regulatory framework.
In this paper we study the impact of different forms of access obligations on firms’ incentives to migrate from the legacy copper network to next generation broadband infrastructures. We analyze geographically differential access prices of copper (that depend on whether or not an alternative fiber network has been deployed in the area) and ex-ante access obligations for fiber networks. We discuss how these regulatory schemes fare in addressing the tension among different objectives, such as the promotion of static efficiency, fostering investments in new infrastructures, and avoiding unnecessary duplication of (fiber) networks.
This paper examines the net neutrality debate in countries outside the U.S., particularly in the EU. Most appear to have endorsed the idea of net neutrality and believe that policies promoting unbundling - mandatory network sharing - will ensure neutral networks. We argue that unbundling may not necessarily affect incumbent incentives to prioritize certain traffic. Because unbundling can affect investment incentives, we use a new dataset to examine empirically the effects of unbundling on investment in new fiber networks in Europe. We find a significant negative correlation between the number of unbundled DSL connections per capita and the number of fiber connections.
This paper provides evidence on the migration of consumers from an “old” (copper-based) to a “new” (fiber-based) communications technology, taking specifically into account the impact of regulatory interventions imposed on the old technology. The analysis has been applied to a sample of EU25 countries using panel data from 2003 to 2014 on the adoption (i.e. the demand of subscriptions by households and firms), and take-up rate of ultra-fast broadband technology (i.e. the ratio between fiber subscribers - “homes connected” - to population covered with fiber connections - “homes passed”). Results show that an increase in the regulated price for accessing the existing old network favours consumer migration to the new technology. However, the access price to old technology negatively affects the take-up rate of the new technology. This implies that access regulation also positively affects broadband coverage but more than demand adoption. Hence, in order to raise broadband take-up rate, other instruments are needed to support ultra-fast broadband subscriptions.
This paper analyses how different types of access regulation to next generation networks affect investments and consumer welfare. The model consists of an investment stage with uncertain returns and subsequent quantity competition. The access price is a function of investment costs and the regulatory regime. A regime with fully distributed costs or a regulatory holiday induces highest investments, followed by risk-sharing and long-run-incremental cost regulation. Risk-sharing creates most consumer welfare, followed by regimes with fully distributed costs, long-run-incremental costs and regulatory holiday, respectively. Risk-sharing benefits consumers as it combines relatively high ex-ante investment incentives with strong ex-post competitive intensity.
The telecommunications sector is innovative and its innovations strongly affect the growth of the rest of the economy. While regulatory policy has therefore shifted towards innovation as its major goal besides enabling competition, there appear to be tensions between regulation, competition and innovation. This paper identifies as the roots of these tensions the consumer protection objective enshrined in regulatory legislation and the regulatory neutrality issues arising from stranded assets, loss of labor rents, loss of services by captive customers, and the threat to regulators from looming deregulation, all of which are associated with innovations. This paper identifies some similar threats to innovation in unregulated sunk-cost industries with a monopolistic incumbent. A very simple model shows that a comparison of innovation incentives in such an unregulated industry with a regulated one leads to ambiguous results. However, the prospect of converting a regulated industry into an unregulated one after the innovation has occurred will unambiguously increase innovation incentives.
This survey of the theoretical and empirical literature on alternative policies to promote new fiber-based communications infrastructures addresses (i) various kinds of ex ante sector-specific regulations, (ii) deregulatory approaches based on effective competition law implementation and competitive market structures including co-investment models, and (iii) public subsidies to cover non-profitable (white) areas. The authors identify significant research gaps and present a generic framework for policy recommendations. Public subsidies emerge as the dominant policy alternative in white areas, whereas access regulations can be the preferred policy in white or gray areas, where only monopoly structure or co-investment models lead to private investment. Deregulatory policies might be preferable in gray areas, provided there is sufficient pressure from competitive outside options and if competition law is strong. Finally, deregulatory policies including soft regulation are the dominant policy in black areas, where several independent infrastructure operators exist.
Policies mandating unbundling of copper telecommunications networks have now been in place for more than 15 years, and it is thus becoming possible to study their long-run effects. This paper reviews the existing evidence on the effects of copper unbundling, and presents new empirical results based on regression analyses of broadband penetration in OECD countries from 2001 to 2010. The results show that the long-run effect of copper unbundling on household broadband penetration rates is negative, a finding which is consistent with previous research, including with research suggesting that copper unbundling has slowed the deployment of FTTP infrastructures, especially in Europe. Based on an analysis of the similarities and differences between the unbundling of copper networks and fiber networks, the paper concludes that mandated unbundling of fiber networks would likely deter deployment of Next Generation Access networks (NGAs).
In a time of rapidly increasing global digitalization, providers of communications networks find themselves confronted with huge growth in broadband-intense demand and hence must address the need to expand high-performance fiber optic networks. However, since deployment of fiber access networks is subject to high risk for operators, a core question faced by regulatory institutions is how to optimally design the regulatory framework to incentivize investment. This work employs recent EU27 panel data and examines the role of regulatory policies and competition controlling for relevant supply and demand side factors and the investment dynamics. The results indicate that relevant forms of previous broadband access regulation have a negative impact on investment in new fiber infrastructure. Furthermore, infrastructure-based competition from mobile operators and the replacement effect stemming from the incumbents’ existing infrastructure exert a negative impact on investment incentives. Finally, there is clear evidence of adjustment costs underlying the fiber deployment process.
Currently, U.S. and EU telecommunications policies differ in many respects. For example, wholesale access to local loops is largely deregulated in the U.S. but continues to be regulated in the EU. Or, the U.S. has an elaborate universal service policy with a set of universal service funds and specific policies for high-cost regions and low-income users, while universal service policies in the EU are much more sporadic. Will the forceful technical and market developments that are associated with IP convergence, next generation access (NGA) and mobile broadband (4G) lead to a convergence of telecommunications policies in the U.S. and EU? Based on a survey of the relevant U.S. and EU related economics literature the current paper addresses this issue for the five policy areas of interconnection, wholesale loop access, net neutrality, spectrum policy and universal service. While IP convergence and the spread of 4G are likely to enhance policy convergence, NGA could have a different effect to the extent that the penetration of and the competitive properties of NGA depend on legacy infrastructures that differ between the two continents.
Alternative telecom operators have continuously invested in their own infrastructure in recent years. After more than a decade since liberalisation, competitive conditions have substantially changed, especially in urban areas. European regulatory authorities have acknowledged this development by starting regional deregulation. Additionally, different forms of cooperative investments in next generation broadband have appeared on the market. The effects of such schemes on competition, investment and welfare crucially depend on the fine details of implementation. For instance, in the case of joint-ventures, it matters how investment costs are shared and how internal and external access prices are determined. In the case of long-term access agreements, it is essential to consider how access tariffs are structured, whether they can adapt to market developments ex-post and whether contracts are signed before or after the investment takes place. Generally, many of these agreements allow some extent of risk sharing, offering the possibility to increase investment incentives when firms are not risk neutral. This article reviews the theoretical and empirical literature on geographic regulation and co-investments in next generation broadband. It is suggested that regulators consider introducing regulated co-investment agreements complementing current regulation or in some cases even substituting for it, in addition to considering geographically segmented access prices.
In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an “old” technology to a “new” technology, and discuss how the terms of wholesale access affect this migration. We show that the coverage of the new technology varies non-monotonically with the access price of the old technology: a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the retail-level migration effect. When the new technology is also subject to access provision, we find that migration from the old to the new generation network at the wholesale level can be incentivized if a positive correlation between the access prices (to the two old and new generation networks) is maintained.
Fiber deployment of next-generation high-speed broadband networks is considered to be a decisive development for any information-based society, yet investment activities and especially the adoption of fiber-based broadband services take place only very gradually in most countries. This work employs static and dynamic model specifications and identifies the most important determinants of the adoption of fiber-based broadband services with recent panel data from the European Union member states for the years from 2004 to 2012. The results show that the more effective previous broadband access regulation is, the more negative the impact on adoption, while competitive pressure from mobile networks affects adoption in a non-linear manner. Finally, we also find evidence for substantial network effects underlying the adoption process.
This paper presents a model of competition between an incumbent firm and an Other Licensed Operator (OLO) in the broadband market, where the incumbent has an investment option to build a Next Generation network (NGN) and it can do so by making an investment sharing agreement with the OLO, or alone. Two different kinds of investment sharing contractual forms are analyzed, a basic investment sharing, where no side-payment is given for the use of the NGN between co-investors, and joint-venture, where a side-payment is set by the co-investing firms. Results show that investment sharing can potentially be beneficial in terms of competition and investments, but the number of firms involved matters and so does the choice of the NGN access price, for insiders and outsiders of the agreement. Even when the presence of firms outside of the agreement force insiders to compete more fiercely, there might be a concern with the potential exclusion of the outsiders from the NGN.
This work identifies the most important determinants of next generation access (NGA) network deployment, using data from the EU27 member states for the years 2005–2011. Our results indicate that the more service-based competition is pronounced the more negative is the impact on NGA deployment, while competitive pressure from broadband cable and mobile affects NGA deployment in an inverted U-shaped manner. We further find that there are severe adjustment costs and stickiness towards the desired long-term level of NGA infrastructure. It appears that the approach of the European Commission to force service-based competition via cost-based access regulation will not elicit the huge new investment needed for a comprehensive NGA roll-out.
Alfred E. Kahn was an observer and practitioner of telecommunications regulation as technology changed the industry from a natural monopoly to a platform-based oligopoly among telephone, cable, satellite, and wireless carriers. Regulation and legislation were slow to recognize these changes, and large welfare losses occurred, some of which could have been avoided if regulators, legislators and economists had followed Fred’s economic advice: Prices must be informed by costs; the relevant costs are actual incremental costs; costs and prices are an outcome of a Schumpeterian competitive process, not the starting point; excluding firms from markets is fundamentally anticompetitive; a reliance on imperfect markets subject to antitrust law is preferable to necessarily imperfect regulation; and a regulatory transition to deregulation entails propensities to micromanage the process to generate preferred outcomes, visible competitors, and expedient price reductions.
This paper analyzes the role of different contract types and access regulation on innovation and competition in telecommunications in the context of Next Generation Access Networks. Within a standard duopoly model, it is shown that ex-post access contracts lead less often to the duplication of investment, but to a wider roll-out compared to a market in which such contracts cannot be offered. In comparison to such ex-post contracts, ex-ante contracts lead to an even wider roll-out, but to a less frequent duplication of investments. Ex-ante contracts in particular, but also ex-post contracts, can be used to dampen competition.
A vertically integrated incumbent and an OLO (Other Licensed Operator) compete in the market for broadband access. The incumbent has the option to invest in building a Next Generation Network that covers all urban areas with similar demand structures. The investment return in terms of demand increase is uncertain. We compare the impact of different access regulation regimes – full regulation, partial regulation (only the copper network is regulated), risk sharing – on investment incentives and social welfare. We find that, when the alternative for the OLO is using the copper network rather than leaving the market entirely, exclusion of the OLO does not necessarily happen in equilibrium even when the incumbent is better in offering value-added services. Risk sharing emerges as the most preferable regime both from a consumer and a social welfare perspective for a large range of parameters.
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.
Telecommunications policy has come a long way from regulation of vertically integrated monopolies to the current state of competition. As competition becomes self sustainable, will telecommunications policy go away or, if not, what form will it take? We try answering this question in light of the economics literature. In particular, we characterize a regulatory efficiency frontier that is shifted by new technological and market developments, such as convergence of networks, fixed-mobile substitution (and integration) and next generation access networks (NGA). The frontier is also affected by the existing capital stock and other physical characteristics of a country. Locations of countries relative to this frontier are likely determined by considerations of global competitiveness, by their institutional endowment and by their existing telecommunications policies. Global competitiveness plays a particular role because of the sector’s increasing impact on a country’s well-being.Below we give some tentative conjectures for five policy areas. The conjectures will be backed up and amended by the full review of the theoretical and empirical literature. (1) Termination monopoly: The regulatory efficiency frontier appears to be moving (a) towards bill & keep and capacity-based (and bit-based) rather than minute-based termination charges because minutes of use have little relevance in packet-switched IP networks and (b) towards deregulation because of the spread of multi-homing and of voluntary interconnection arrangements. (2) Local bottleneck access: The regulatory efficiency frontier has shifted in three ways. First, deregulation will be efficient in high-density regions, where NGA can be duplicated, or in all regions, once technical and market developments provide sufficient competitive substitutes. Second, depending on the NGA technology chosen (P2P or GPON) bitstream access may replace ULL as the efficient regulatory approach. Third, because investments in NGA networks are increasingly hard to finance the regulatory emphasis shifts from static efficiency towards investment and innovation. This results in a regulatory frontier involving cooperative investment, softer regulation or regulatory holidays. (3) Net neutrality: The regulatory efficiency frontier will likely involve three aspects. First, the more competitive ISPs are the more likely that “violations” of net neutrality will be efficient. Thus, a general policy of net neutrality is likely to be inefficient. Second, the tools of (ex post) competition policies are likely more efficient than ex ante regulation. Third, there will be interactions between net neutrality policy and regulation of wholesale access. (4) Spectrum management: The positive experience with market-based spectrum management and with unassigned free spectrum has led to diverging views about spectrum scarcity, one claiming that spectrum is scarce and therefore has to be economized via tradable property rights, the other claiming that there is enough spectrum and that users can deal with any interference. Our reading of the literature is that each view holds for different parts of the spectrum so that the future regulatory efficiency frontier will include unassigned spectrum as a commons and fully tradable spectrum ownership (or licenses), each for a different part of the spectrum. (5) Universal service: The efficiency frontier in the universal service area clearly depends on the success in the four others. If a country is at the efficiency frontier in all the other areas there may be little need for an additional universal service policy. What determines the endgame in telecommunications policy? Although technical and market developments will dominantly shape the regulatory efficiency frontier, institutional and political economy factors have an additional and mostly slowing effect on policy changes. Nevertheless, we conjecture from the empirical literature that striving for global competitiveness has an accelerating effect counteracting other political influences to the contrary.
Can regulation solve problems arising from a natural monopoly? This paper analyzes whether "unbundling," referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that regulated monopolists' shares will increase.
In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an "old" technology to a "new" technology, and discuss how the terms of wholesale access affect this migration. We show that a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the business migration effect. If both the old and the new infrastructures are subject to ex-ante access regulation, we also find that the two access charges are positively correlated.
In the telecommunications industry, the ladder of investment approach claims that service-based competition (when entrants lease access to incumbents' facilities) can serve as a "stepping stone" for facility-based entry (when entrants build their own infrastructures to provide services). In this paper, we build an empirical model considering a complete ladder of investment, composed of three rungs: bitstream access, local loop unbundling and new access facilities. Using data from the COCOM "Broadband access in the EU" reports covering 15 European member states for 17 semesters, we test the ladder of investment hypothesis. We find no empirical support for this hypothesis, that is, for the transition from local loop unbundling to new access infrastructures, and weak empirical support for the transition from bitstream access lines to local loop unbundling. These results are robust when we take into account the migration effect, the number of access rungs, the development of broadband cable, the regulatory performance, and the evolution of local loop unbundling prices.
This research analyses the adoption of very high speed broadband (e.g. fiber to the home) and provides diffusion forecasts (i.e. yearly changes in subscription) for countries across the world. We present econometric models which estimate the diffusion rate according to a set of supply and demand characteristics. Based on data for 25 countries for the period of 1999-2009 we show that the demand- and supply-side factors such as income, monthly subscription price, and competition in broadband and television can explain 75% of the variance in the observed yearly change in subscription. Based on the econometric results we use a discrete form of the Logistic diffusion function and estimate the diffusion rate according to the above factors. We find that a country-specific diffusion model can substantially improve the forecast accuracy. Based on country specific models we show that 50% of households in most of the countries in Central and Eastern Europe will adopt high speed broadband through fiber to the home/building (i.e. FTTx) technology by 2015-2016. In contrast, we find that adoption rate in most countries in Western Europe is much slower and 50% of households will adopt FTTx broadband only after 2020.
Recent discussion of regulatory interventions in telecommunications markets have considered an approach in which competitors are encouraged progressively to make investments in network assets which are less and less easily replicable--thus climbing 'the ladder of investment.' The paper proposes and illustrates methods for assessing the replicability of different assets and sets out the steps which regulators can follow in implementing the approach.
This paper investigates firms’ incentives to innovate in Next Generation Access Networks. The market is initially asymmetric because one firm owns an "old" technology. This operator or its competitor may invest in a new access network. We focus on regulation of the old technology and show that a higher regulated access fee for the old technology leads to lower incentives to invest for the firm owning the old access network, while its competitor has stronger incentives to invest. We extend the analysis to privately negotiated access contracts for and access regulation of the new technology.
A growing number of countries are reexamining telecommunications policies in search of approaches that better support investment and innovation in advanced communication networks and services. In addition to regulatory instruments, a broad range of fiscal and industrial policy measures are being revitalized. These instruments affect regulated and unregulated firms in the ICT ecosystem in multifaceted ways and sometimes have counterintuitive effects on aggregate performance. The design of policies is further complicated by trade-offs between short-term and long-term policy objectives. This article examines individual and joint effects of regulatory and other policy instruments on the investment incentives in advanced communications. It conceptualizes governance as a problem of “tuning” a highly dynamic, adaptive system. Alternative consistent combinations of regulation and public policy are feasible but they have different implications for sector outcomes, most importantly the balance between static and dynamic performance.
The paper reviews the preceeding theoretical and econometric analysis, and the case study of the Netherlands. It suggests that entrants’ strategies will be influenced by the level of access prices and on the degree of investment in infrastructure which entrants have to make to be eligible to purchase interconnection services at wholesale prices. Entrants will typically invest first in replicable assets, and then progress to less replicable ones—although this will also depend upon their initial endowments. This suggests that entry may best be encouraged initially by low access prices, with those prices possibly increasing over time as assets are replicated.
Investment in broadband communications and its infrastructures (the so-called Next Generation Networks) is receiving extraordinary attention from policy makers all over the world, due to the significant impact of high-speed Internet access on the whole economy and society. However, even before the recent financial crises, a dramatic downward trend in telecommunications investment has occurred, mainly due – at least according to incumbent operators – to excessively intrusive regulatory intervention. The typical conflict between regulation, competition and investment emerges. It is therefore important, for both future research and regulatory and practitioners’ references, to review the specialized but growing branch of the literature on this interesting and policy-relevant issue. The purpose of this paper is therefore to survey the relevant theoretical and empirical literature on the relationship between regulation, at both retail and wholesale level, and investment in telecoms infrastructures. The picture that emerges is not conclusive, and further research is still needed, both theoretically and empirically, to better understand the real impact of regulatory incentives on investments.
The evolution of broadband penetration has shown substantial differences between OECD countries. This paper empirically investigates to what extent different forms of regulated competition explain these international differences. It distinguishes three modes of competition between broadband internet access providers that result from regulatory policies: (1) inter-platform competition; (2) facilities-based intra-platform competition; and (3) service-based intra-platform competition. In most countries these forms of competition co-exist although their intensity varies from country to country. Intra-platform competition may differ among countries depending on the degree of mandatory access obligations imposed by the regulator on the dominant network firm. Based on a sample of OECD countries, the analysis finds that inter-platform competition has been a main driver of broadband penetration. The two types of intra-platform competition have a considerably smaller effect on the broadband penetration. Linking these findings back to access regulation suggests that the “stepping stone” or “ladder of investment” theories might not provide the justification to impose extensive mandatory access obligations on DSL incumbents.
This paper analyses how different types of access regulation to next generation networks affect investments and consumer welfare. The model consists of an investment stage with uncertain returns and subsequent quantity competition. The access price is a function of investment costs and the regulatory regime. A regime with fully distributed costs or a regulatory holiday induces highest investments, followed by risk-sharing and long run incremental costs regulation. Simulations indicate that risk-sharing creates most consumer welfare, followed by regimes with fully distributed costs, regulatory holiday and long run incremental costs, respectively. Risk-sharing benefits consumers as it combines relatively high ex-ante investment incentives with strong ex-post competitive intensity.
The “ladder of investment” is a regulatory approach proposed by Cave (2006), which has been widely embraced by national regulatory authorities in the European telecommunications sector. The approach entails providing entrants, successively, with different levels of access—the “rungs” of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements—albeit they have been traditionally viewed as substitutes—in promoting competition. The regulators, thus, have shown a strong interest in this approach. The paper provides a critical review of the ladder of investment approach by setting out its two underlying assumptions and discussing their validity with references to the related industrial organization literature.
We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70+ fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants' and incumbents' investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents' investments encourage provision of regulated access.
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