A Critical Review of the 'Ladder of Investment' Approach

Abstract

The "ladder of investment" is a regulatory approach proposed by Martin Cave (2006), which has been widely embraced by national regulatory authorities in the European telecommunications sector. The approach entails providing entrants, successively, with different levels of access - the "rungs" of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements - albeit they have been traditionally viewed as substitutes - in promoting competition. The regulators, thus, have shown a strong interest in this approach. In this paper, we provide a critical review of the ladder of investment approach by setting out its two underlying assumptions and discussing their validity with references to the related industrial organization literature.

Keywords: Ladder of investment, Facility-based competition, Telecommunications

JEL Classification: L51, L96