Can Access Price Indexation Promote Efficient Investment in Next Generation Networks?

Abstract

The existing literature on access price and investment has pointed out that networks underinvest under a regime of mandatory access provision with a fixed access price per end-user. In this paper we propose a new access pricing rule, the indexation approach, i.e., the access price, per end-user, that network i pays to network j is function of the investment levels set by both networks. We show that the indexation can enhance economic efficiency beyond what is achieved with a fixed access price. In particular, the access price indexation can simultaneously induce lower retail prices and higher investment and social welfare as compared to both the fixed access pricing and the regulatory holidays. Furthermore, we show that the indexation can implement the socially efficient investment, which would be impossible to obtain under a fixed access pricing. Our results contradict the notion that investment efficiency must be sacrificed for gains in pricing efficiency.