What is the Effect of Regulation on Broadband Investment? Regulatory Certainty and the Expectation of Returns
11 Pages Posted: 24 May 2013
Date Written: September 19, 2012
Since broadband distribution networks, both wireless and wireline, require large levels of capital expenditures on long-lived assets, a Broadband Service Provider’s incentive to invest in modern broadband infrastructure is influenced not only by current regulation but also by expectations regarding future regulatory interventions. The effective stimulus of broadband investment requires regulators not only to make prudent decisions today, but also to signal to investors that the future is a favorable investment climate and, if possible, to make inter-temporal commitments to particular regulatory paradigms. Using an economic model of “regulatory certainty,” we demonstrate that investment levels are determined not so much by the level of certainty and uncertainty, but rather by what broadband providers are certain about. If providers become more certain that regulation will reduce the returns on investment in the future, then this signal of “strong” regulation curbs investment.
Keywords: Broadband, Internet, Uncertainty, Regulatory Uncertainty, Regulation, Investment
JEL Classification: L96
Suggested Citation: Suggested Citation