Light-handed regulation of access in Australia: negotiation with arbitration

Abstract

Interconnection based on commercial negotiation subject to arbitration forms part of US and Australian telecommunications legislation. General infrastructure access in Australia is also governed by `light-handed’ regulation based on bargaining. This paper considers the potential outcomes of access regulations based on negotiation. Using an infinite period bargaining game with an outside regulatory option, we show that a range of potential equilibria can be supported by negotiation. Access seekers and access providers may fail to seize monopoly profits in equilibrium. The regulator can substantially influence the range of bargaining outcomes through both the expected outcome of arbitration and its interpretation of regulatory procedures. We consider alternative regulatory approaches consistent with the Australian legislation. The model presented in this paper uses the Australian regime as a template, but provides insight into the broader issue of `light-handed’ access regulation.