Infrastructure-based Competition Research Articles

The mitigating role of regulation on the concentric patterns of broadband diffusion. The case of Finland

This article analyzes the role of Finnish regulation in achieving the broadband penetration goals defined by the National Regulatory Authority. It is well known that in the absence of regulatory mitigation the population density has a positive effect on broadband diffusion. Hence, we measure the effect of the population density on the determinants of broadband diffusion throughout the postal codes of Finland via Geographically Weighted Regression. We suggest that the main determinants of broadband diffusion and the population density follow a spatial pattern that is either concentric with a weak/medium/strong strength or non-concentric convex/concave. Based on 10 patterns, we argue that the Finnish spectrum policy encouraged Mobile Network Operators to satisfy ambitious Universal Service Obligations without the need for a Universal Service Fund. Spectrum auctions facilitated infrastructure-based competition via equitable spectrum allocation and coverage obligation delivery via low-fee licenses. However, state subsidies for fiber deployment did not attract investment from nationwide operators due to mobile preference. These subsidies encouraged demand-driven investment, leading to the emergence of fiber consumer cooperatives. To explain this emergence, we show that when population density decreases, the level of mobile service quality decreases and community commitment increases. Hence, we recommend regulators implementing market-driven strategies for 5G to stimulate local investment. For example, by allocating the 3.5 GHz and higher bands partly through local light licensing.

Enabling the Digital Economy

In this contribution we argue the importance of an ubiquitous high speed broadband infrastructure in Europe based on an analysis of subsequent technological revolutions, each characterized by a specific core infrastructure which enables the broad deployment of innovations, which in turn leads to a structural improvement in productivity.To reap the full benefits of the current ICT-driven technological revolution adaptation of the institutional environment is essential, as overtime rules and regulations have been optimized for the previous techno-economic paradigm. A fundamental adaption has been the liberalization of the sector in the late 1990s. This enabled the deployment of Pan-European optical backbone networks. We argue the importance of infrastructure-based competition in the development of broadband access networks, but also recognize the limits of the market-driven model. Hence, we emphasize the important role of governments where and when commercial models fail to supply broadband. Here, research has shown a large diversity in alternative approaches and bottom-up solutions across Europe, based on initiatives by municipalities, non-telco entrepreneurs, cooperatives and communities of users. In closing the broadband gap we recommend these initiatives to be leveraged and facilitated by national, regional and local governments.Next to ubiquitous coverage and affordable broadband, a high degree of usage is critical. This leads to the importance of the other Pillars of the Digital Agenda for Europe on digital literacy, skills and a safe and secure Internet. Research also suggests that the economic benefits will only materialize if investments in ICT hardware and software are complemented with investment in human capital, i.e. in skills development, and the reconceptualization of the business models and business processes. Early examples are the change from ‘print distribute’ to ‘distribute print’ and the disintermediation of the ‘middle man’. More recent examples are Airbnb, Uber and Snappcar.An investigation into Internet usage, in particular the average peak rates which are indicative for the broadband capacity available to end-users, suggests that leading countries in Europe are at par with leading states in the USA, while there is still a gap with South Korea and Japan. South Korea and Japan benefit from a higher starting point enabled by the broad deployment of fibre. Nonetheless, if the leading countries in Europe keep up the current growth rate of 30% demonstrated over the past 8 years the gap with South Korea will be closed by 2020. Hence, policy focus should be on keeping the momentum in the leading countries and on closing the gap by the other countries in Europe.While legacy copper networks have been crucial for providing the early broad access to the Internet, increasingly higher data rates require increasing use of fibre. Medium and large business users have already the opportunity to be connected by fibre. For residential users this will in the short term likely be in the form of upgrades from fibre to the cabinet to fibre to the distribution point/last amplifier and fibre to the basement, with full fibre deployment in greenfield situations. On the longer term this will have to be all fibre deployments to all users to accommodate the projected growth towards Gigabit data rates in 2025.

Competition in Colombian Telecommunications

In November of 2015, the Colombian think tank Fedesarrollo published its report “Update on the Study of Competition in the Mobile Telephony Market in Colombia,” which purports to reveal a lack of competition in Colombian telecommunications. Fedesarrollo’s report also offers policy recommendations to remedy the supposed problems with competition in Colombian telecommunications that it identifies. However, Fedesarrollo’s simplistic empirical analysis is fundamentally flawed and uninformative. Moreover, the policy recommendations that the report’s sponsors — telecommunications operators Telefonica and Tigo — offer in the report and elsewhere would harm Colombian consumers. In this article, I evaluate the market for mobile voice services in Colombia, analyze Telefonica’s and Tigo’s policy recommendations, and critique Fedesarrollo’s empirical analysis. I conclude that there is no evidence of consumer-welfare loss in Colombian mobile markets. On the contrary, my empirical analysis of mobile voice services in Colombia using benchmark prices reveals consumer-welfare gains. Moreover, the policies that Telefonica and Tigo recommend — increased asymmetric regulations and restrictions on the offerings of their primary competitor, Claro Colombia — would harm consumers and competition in the markets for mobile voice and data services in Colombia, with a disproportionate share of that harm falling on Colombia’s poorest consumers. Those policies would shield Telefonica and Tigo from competition, which would increase prices in the short run and discourage investment and long-run growth. Telefonica’s and Tigo’s recommendation to delay new spectrum auctions could cost Colombian consumers billions of pesos in lost consumer surplus. Instead, Colombia should promote infrastructure-based competition, implement a symmetric regulatory regime, and hold open spectrum auctions without restriction or delay to encourage dynamic competition without any offsetting harm to static competition. Those policy initiatives will ensure that the markets for mobile services in Colombia remain competitive in both the short run and the long run.

How EU sector-specific regulations and competition affect migration from old to new communications infrastructure: recent evidence from EU27 member states

In a time of rapidly increasing global digitalization, providers of communications networks find themselves confronted with huge growth in broadband-intense demand and hence must address the need to expand high-performance fiber optic networks. However, since deployment of fiber access networks is subject to high risk for operators, a core question faced by regulatory institutions is how to optimally design the regulatory framework to incentivize investment. This work employs recent EU27 panel data and examines the role of regulatory policies and competition controlling for relevant supply and demand side factors and the investment dynamics. The results indicate that relevant forms of previous broadband access regulation have a negative impact on investment in new fiber infrastructure. Furthermore, infrastructure-based competition from mobile operators and the replacement effect stemming from the incumbents’ existing infrastructure exert a negative impact on investment incentives. Finally, there is clear evidence of adjustment costs underlying the fiber deployment process.

A New Regulatory Policy for FTTx-Based Next-Generation Access Networks

This article critically assesses the latest European Commission policies in relation to next-generation access investment that put focus on regulated prices and relaxing of wholesale access obligations. Pointing at the vital socio-legal and economic arguments, it further challenges the assumptions of the current EU regulatory framework and calls for a more contractual utility-based model of regulation instead of the current system that overly relies on market-driven infrastructure-based competition.

Competition–regulation interface in telecommunications: What’s left of the essential facility doctrine

The essential facility doctrine lies at the core of telecoms regulation since its very first steps in the United States and in the European Union. Later, the doctrine spread around the world and currently stands as a key pillar of the liberalization efforts underway in several countries. However, the concept of essential facility is a very dynamic one in the telecoms field, which makes it hard for regulators and regulated stakeholders to strike the right balance between incentives to invest in new infrastructure and securing access-based competition in the short run. Experiment such as the “stepping stones” approach in the US and the “investment ladder” approach in the EU have led to very mixed results, in the US, the FCC eventually abandoned this approach to stimulate investment in new high-speed infrastructure through “access holidays”. The decline of the essential facilities doctrine in the US was not echoed by any relaxation of regulatory obligations in the EU, Canada and other countries, to the contrary, the US now seems likely to reconsider the essential facilities doctrine, at least in the application of antitrust law. Whether this will lead to a revival of the doctrine in the US and around the world, especially for next generation access networks, remains to be seen. The paper argues that interpreting the concept of essential facilities too broadly is likely to lead to insufficient incentives to invest in the future, it is thus advisable to get back to a narrow interpretation of this doctrine, in order to strike the right balance between the incentives to engage in infrastructure-based competition and the goal of boosting service-based competition in the short-term. Several debates that are currently raging around the world—including the debate over NGA deployment and the net neutrality querelle—are likely to be affected by the essential facilities doctrine in the years to come.

Regulating Next-Generation Fixed Access to Telecommunications Services

This paper considers a central issue in telecommunications regulation. What rules, if any, should regulators put in place to provide incentives for timely and efficient investment in NGA while, at the same time, preventing monopoly abuse - either by taking monopoly rents from end users or harming downstream competition? We focus on the regulatory environment in the EU in attempting to answer this question. But the proposals we make are equally relevant to the rest of the developed world. There is a range of both active and passive remedies which regulators might use. We argue that, while passive remedies are important in enabling infrastructure-based competition, active (bitstream) remedies will be important for preserving competition in the supply of retail, NGA-based, products, In particular bitstream offers access seekers a way of reaching customers nation-wide at the same time as the national fixed incumbent for a relatively modest investment. This is especially important when competing for the revenues of multi-sited businesses. To regulate bitstream products effectively regulators might specify the price regulation principles which would apply to operators found to have significant market power (SMP) in NGA supply in advance of any market definition and SMP assessment. To enable timely and efficient investment in NGA regulators should allow access providers to provide distinct NGA-based bitstream products to meet the needs of different segments of the end-user market and to then charge for these products at the wholesale level so as to reflect their value to end users rather than their costs. But regulators also need to put in place competitive safeguards. These might require access providers with SMP to supply all access seekers, including its own downstream retail business, on equivalent supply conditions and prevent them from exerting a price squeeze on access seekers. Access providers with SMP should also provide a price regulated bitstream product to replace unbundled local loops. Transition measures are also important in moving from competition based on copper access to competition based on NGA access. Here we argue that regulators should allow incumbent fixed operators to shut down their copper networks; remove obligations on access providers to offer legacy wholesale products at greenfield sites where they want to supply FTTH; and not require access providers to compensate local loop unbundlers for any shortening of economic asset lives as a result of closure of the copper access networks. Instead they should give reasonable minimum notice of such closures so as to allow an orderly transition to competition in an NGA world.

Competition in Broadband Provision and its Implications for Regulatory Policy

This report examines mass-market broadband access and take-up, analyzing the current and prospective level of competition and drawing implications for public policy. report was commissioned by Brussels Round Table, a forum for leading European telecommunication operators and equipment manufacturers, including Alcatel, BT, Deutsche Telekom, Ericsson, France Telecom, Siemens, Telefonica de Espana, and Telecom Italia.A distinction is drawn between 'facilities-based competition', where providers are using all (or some of) their own infrastructure, and 'access-based competition', where providers depend on access to someone else's network. Amongst EU Member States, there is a general consensus that infrastructure-based competition is desirable in telecommunications and has an important role in delivering innovations such as broadband. However, public statements from national regulatory authorities (NRAs) about the benefits of infrastructure competition have not always been matched by coherent regulatory policy designed to facilitate such competition. Broadband is a new service. Typically, new services are not subject to specific regulation, owing to the risk that this would discourage investment and stifle innovation. However, from its inception, the development of broadband access has been influenced by intervention from policy makers and regulators. This intervention includes local and national government initiatives to promote broadband, and ex-ante obligations on incumbent telecom operators to provide access to their networks.While broadband penetration is widely portrayed as being disappointingly slow, penetration is actually quite fast relative to the adoption of comparable technologies - thus questioning the claim's use as a justification for public policy intervention. Given the prevalence of intervention to date, an equally valid response is to question the effectiveness of existing regulation. Both new entrants and incumbent operators are rational agents who inevitably respond to regulatory incentives; if broadband deployment in the EU has been too slow, regulatory policy is a key area where one should look for an explanation. current approach of NRAs to broadband is heavily influenced by the existing regulatory framework for traditional telephony services, with its emphasis on access to the local loop. appropriateness of this approach may be questioned, given that broadband is a new service that requires new infrastructure build (even if existing networks are used) and that it can and is delivered over many different types of platforms, including cable, satellite, fixed wireless and mobile.Against this background, this report has a number of objectives: to highlight the extent to which there is currently competition between platforms in the provision of broadband access; to explore the potential for growth in platform competition (subject to a supportive policy environment) and likely market dynamics; to assess the relative effectiveness of platform competition and access-based entry in delivering benefits for customers and reducing the need for regulation; to assess the impact of public policy on incentives to invest in infrastructure and so on the future development of platform competition; and to develop conclusions about the appropriate public policy towards broadband.The report's authors are Dan Maldoom and Richard Marsden of DotEcon, and Gregory Sidak and Hal Singer of Criterion Economics. report was presented in Brussels on October 15, 2003 to the BRT conference The Future of the European Telecommunications Industry, attended by member company CEOs, members of the European Parliament, Commissioner Erkki Liikanen, and other regulators from the European Commission.