Dark fiber price regulation in the absence of facilities-based competition

Abstract

Abstract Contrary to copper, fiber is a segmented vital input. This means that, even though a National Regulatory Authority may regulate active fiber, the owner of the fiber network infrastructure may distort retail competition and obtain a sufficiently high wholesale revenue through the sale of dark fiber if this is not subject to regulatory intervention. Given the recent trend in favor of access price regulation of dark fiber in Europe, the analysis evaluates which wholesale price control method should be applied considering that the market structure of the telecommunications industry is the monopolistic bottleneck. Three regulatory options are tested against each other: active-minus regulation, cost-based regulation applied to both layers of the segmented vital input and equivalence of inputs. The imposition of active-minus regulation improves investment incentives and social welfare compared to the alternative methods.