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

35 Pages Posted: 29 Jan 2011 Last revised: 23 Aug 2013

See all articles by Maya Bacache

Maya Bacache

Télécom Paris

Marc Bourreau

Telecom ParisTech

Germain Gaudin

University of Freiburg - College of Economics and Behavioral Sciences

Date Written: July 1, 2013

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 that encompasses a complete ladder-of-investment, composed of three rungs: bitstream access, local loop unbundling and new access facilities. Using data from the European Commission’s “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.

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

JEL Classification: L51, L96

Suggested Citation

Bacache, Maya and Bourreau, Marc and Gaudin, Germain, Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Fixed Broadband Industry (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=1750217 or http://dx.doi.org/10.2139/ssrn.1750217

Maya Bacache

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Marc Bourreau (Contact Author)

Telecom ParisTech ( email )

46, rue Barrault
Paris Cedex 13, F-75634
France

Germain Gaudin

University of Freiburg - College of Economics and Behavioral Sciences

Freiburg, D-79085
Germany

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