Economic replicability tests for next-generation access networks

Abstract

This paper discusses the relevant cost standard for the economic replicability test for Next-Generation Access (NGA) networks, described in the “Recommendation on consistent non-discrimination obligations and costing methodologies” adopted by the European Commission. According to the Recommendation, in order to reconcile investment and competition, wholesale prices should have nonlinear characteristics and only partly vary by the number of accesses. It demonstrates that a cost standard for the economic replicability test, which implies fully fixed and variable cost recovery for the access seeker, including the total wholesale price, would be incompatible with the economics of NGA networks and that such a test would deter NGA investment. Therefore, the cost standard should include only the variable part of the wholesale price. However, this paper underlines that during a transition phase, until competitors have secured access to NGA infrastructure, a second temporary test called the “competition migration test” should be added to ensure incumbent NGA retail prices do not foreclose efficient copper-based entrants. The two proposed tests surpass the limits of the “ladder of investment” theory by including the “business migration effect” developed by Bourreau, Cambini, and Dogan (2012).