Access Regulation, Entry and the Investment Ladder in Telecommunications

33 Pages Posted: 1 Sep 2010

See all articles by Antonio Sciala

Antonio Sciala

Università degli Studi Roma Tre

Fabio M. Manenti

University of Padua - Department of Economics and Management

Date Written: August 31, 2010

Abstract

This paper presents a model of competition between an incumbent and an entrant firm in telecommunications. The entrant has the option to enter the market with or without having preliminary invested in its own infrastructure; in case of facility based entry, the entrant has also the option to invest in the provision of enhanced services. In case of resale based entry the entrant needs access to the incumbent network. Unlike the rival, the incumbent has always the option to upgrade the existing network to provide advanced services. We study the impact of access regulation on the type of entry and on firms' investments. Without regulation, we find that the incumbent sets the access charge to prevent resale based entry and this overstimulates rival's investment that may turn out to be socially inefficient. Access regulation may discourage welfare enhancing investments, thus also inducing a socially inefficient outcome. We extend the model to account for negotiated interconnection in case of facilities based entry.

Keywords: telecommunications, ladder of investment, access regulation, interconnection

JEL Classification: L86, L96, L51

Suggested Citation

Sciala, Antonio and Manenti, Fabio M., Access Regulation, Entry and the Investment Ladder in Telecommunications (August 31, 2010). Available at SSRN: https://ssrn.com/abstract=1669263 or http://dx.doi.org/10.2139/ssrn.1669263

Antonio Sciala

Università degli Studi Roma Tre ( email )

Via Ostiense, 161/163
Rome, 00154
Italy
+39 06 5733.2664 (Phone)
+39 06 5733.2291 (Fax)

Fabio M. Manenti (Contact Author)

University of Padua - Department of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy

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