Regulation, Public Policy, and Investment in Communications Infrastructure

Abstract

Regulation and other forms of public policy toward infrastructure industries were and are designed to support large-scale investment. Throughout history, with few exceptions, rather pragmatic approaches guided policies. A more rigorous lens was only applied more recently although it often focused on narrow aspects of regulation. In contrast, this paper attempts to develop a broader, integrated framework to analyze the effects of regulatory and other public policy choices on sector investment. During the past decades, regulation has gradually abandoned instruments that allowed regulators to influence investment decisions directly. Presently used forms of wholesale regulation such as unbundling and network neutrality requirements work indirectly, creating complex and sometimes contradictory incentives for the affected stakeholders. Regulation cannot anymore control investment. Rather it functions as a tuning variable that influences the level and the structure of investment activity in various direct and indirect, often non-linear ways. Fiscal and monetary policy instruments also can be used to influence investment choices but they have their own advantages and disadvantages and do not work under all conditions. Due to the multi-faceted effects of regulatory measures, fiscal and monetary policy is preferable to regulatory measures to create short term economic stimulus. Whereas the overall effects of a combination of regulatory and other public policy measures on communications sector investment levels and structure are difficult to predict, basic guidelines for the design of a coherent approach can be specified.