Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Telecoms Industry

Abstract:     
In the telecommunications industry, the ladder of investment approach claims that service-based competition (when entrants lease access to incumbents' facilities) can serve as a "stepping stone" for facility-based entry (when entrants build their own infrastructures to provide services). In this paper, we build an empirical model considering a complete ladder of investment, composed of three rungs: bitstream access, local loop unbundling and new access facilities. Using data from the COCOM "Broadband access in the EU" reports covering 15 European member states for 17 semesters, we test the ladder of investment hypothesis. We find no empirical support for this hypothesis, that is, for the transition from local loop unbundling to new access infrastructures, and weak empirical support for the transition from bitstream access lines to local loop unbundling. These results are robust when we take into account the migration effect, the number of access rungs, the development of broadband cable, the regulatory performance, and the evolution of local loop unbundling prices.

Number of Pages in PDF File: 34

Keywords: Access Regulation, Investment, Next Generation Access Networks, Telecommunications

JEL Classification: L51, L96

working papers series