Ladder Of Investment Research Articles

Irrational Expectations: Can a Regulator Credibly Commit to Removing an Unbundling Obligation?

There is a large empirical literature that investigates the effects of unbundling requirements on broadband operators' incentives to invest in infrastructure. To date, that literature has generally relied on industry-wide data as an indicator of how the representative operator reacts to the imposition of mandatory unbundling. In this paper, we present original findings on how specific firms reacted to the removal of an unbundling obligation - that is, an act of regulatory forbearance - either for an existing access technology or for a new access technology. We rely on three case studies to evaluate the impact of regulatory forbearance on specific incumbents and entrants that were directly affected by the regulator's decision. Our findings from the first case study appear to undermine the so-called stepping stone justification for unbundling an existing access technology (for example, the copper loop). In particular, there is a large discontinuity in the investment by entrants around the date of forbearance, in contrast to the steady movement up the ladder of investment predicted by the stepping stone hypothesis. Such a discontinuity suggests that either (1) the regulator failed to signal its deregulatory intentions to entrants, or (2) that the signal was clear but the entrant did not react according to the theory. We also find that incumbent investment increases significantly in response to forbearance from regulating a new access technology (for example, fiber loops). When forbearing from regulating an existing access technology, regulators can signal their future intentions to entrants by slowly increasing the regulated wholesale rate. In the case of forbearing from regulating a new technology, however, there is no equivalent mechanism by which regulators can signal their deregulatory intentions to incumbents. Because a regulator cannot credibly signal its commitment to industry participants, and because such a commitment is critical to the practical success of the stepping stone theory, the best policy for maximizing investment is to accelerate the date of forbearance for existing and new access technologies.

Fighting the monopoly bogeyman

Structural separation is a tool available to regulators when it is apparent access regulation and competition policy are failing. In Australia there is prolific competition, but because of ACCC pricing policies, that competition is clustered in high-value suburban areas, and is still reliant on access to Telstras local loops. Competitors have failed to move up the ladder of investment because lower rungs have been under-priced. That is history. We now need massive investment in next generation networks. Out with the ladder, and in with a high-cost escalator! An FTTN investor not only takes on a much higher risk, without sufficient demand signals, confidence in a commercial return, and a stable regulatory environment, there won't be an FTTN investment. Structural separation not only increases the commercial risk, it decreases the chances of the investment ever taking place by separating the demand and supply sides of a company Copyright 2008 Tony Warren. No part of this article may be reproduced by any means without the written consent of the publisher.

Fighting the monopoly bogeyman: The mythical basis for structural separation

Structural separation is a tool available to regulators when it is apparent access regulation and competition policy are failing. In Australia there is prolific competition, but because of ACCC pricing policies, that competition is clustered in high-value suburban areas, and is still reliant on access to Telstras local loops. Competitors have failed to move up the ladder of investment because lower rungs have been under-priced. That is history. We now need massive investment in next generation networks. Out with the ladder, and in with a high-cost escalator! An FTTN investor not only takes on a much higher risk, without sufficient demand signals, confidence in a commercial return, and a stable regulatory environment, there won't be an FTTN investment. Structural separation not only increases the commercial risk, it decreases the chances of the investment ever taking place by separating the demand and supply sides of a company Copyright 2008 Tony Warren. No part of this article may be reproduced by any means without the written consent of the publisher.

Resale als regulatorische Option zur Umgehung des Anschlussmonopols in Kommunikationsmärkten

Abstract The paper deals with the regulatory remedy of “Wholesale Line Rental” (WLR) also simply called „Resale“. As there is still a major lack of competition regarding voice telephony access, WLR could offer a wider field of strategic actions to alternative network operators so that they have the same scope of possibilities as incumbent operators. It is shown, that service competition does not necessarily cannibalise infrastructure competition, and, in contrary, a complementary relationship can be expected which means that service competition is often essential to enable sustainable infrastructure competition by walking along the ladder of investment. For this purpose a consistent price regulation that also considers the differences in the risks at the various stages of the value chain is inevitable. In this regard Retail-Minus is the preferred price setting method.

Encouraging infrastructure competition via the ladder of investment

Recent discussion of regulatory interventions in telecommunications markets have considered an approach in which competitors are encouraged progressively to make investments in network assets which are less and less easily replicable—thus climbing ‘the ladder of investment.’ The paper proposes and illustrates methods for assessing the replicability of different assets and sets out the steps which regulators can follow in implementing the approach.

Did Mandatory Unbundling Achieve Its Purpose? Empirical Evidence from Five Countries

In this article, we examine the rationales offered by telecommunications regulators worldwide for pursuing mandatory unbundling. We begin by defining mandatory unbundling, with brief descriptions of different wholesale forms and different retail products. Next, we examine four major rationales for regulatory intervention of this kind: (1) competition in the form of lower prices and greater innovation in retail markets is desirable, (2) competition in retail markets cannot be achieved with mandatory unbundling, (3) mandatory unbundling enables future facilities-based investment (‘stepping-stone’ or ‘ladder of investment’ hypothesis), and (4) competition in wholesale access markets is desirable. We proceed by testing empirically the major rationales in the United States, the United Kingdom, New Zealand, Canada, and Germany. For each case study, we review the mandatory unbundling experience with respect to retail pricing, investment, entry barriers, and wholesale competition. We review the lessons learned from the unbundling experience. We also identify which rationales were incorrect in theory and which rationales were correct in theory yet were not satisfied in practice. For the second category of rationales, we attempt to provide alternative explanations for the failure of mandatory unbundling to achieve its goals.