Irrational Expectations: Can a Regulator Credibly Commit to Removing an Unbundling Obligation?

There is a large empirical literature that investigates the effects of unbundling requirements on broadband operators' incentives to invest in infrastructure. To date, that literature has generally relied on industry-wide data as an indicator of how the representative operator reacts to the imposition of mandatory unbundling. In this paper, we present original findings on how specific firms reacted to the removal of an unbundling obligation that is, an act of "regulatory forbearance"either for an existing access technology or for a new access technology. We rely on three case studies to evaluate the impact of regulatory forbearance on specific incumbents and entrants that were directly affected by the regulator's decision. Our findings from the first case study appear to undermine the so-called "stepping stone" justification for unbundling an existing access technology (for example, the copper loop). In particular, there is a large discontinuity in the investment by entrants around the date of forbearance, in contrast to the steady movement up the ladder of investment predicted by the stepping stone hypothesis. Such a discontinuity suggests that either (1) the regulator failed to signal its deregulatory intentions to entrants, or (2) that the signal was clear but the entrant did not react according to the theory. We also find that incumbent investment increases significantly in response to forbearance from regulating a new access technology (for example, fiber loops). When forbearing from regulating an existing access technology, regulators can signal their future intentions to entrants by slowly increasing the regulated wholesale rate. In the case of forbearing from regulating a new technology, however, there is no equivalent mechanism by which regulators can signal their deregulatory intentions to incumbents. Because a regulator cannot credibly signal its commitment to industry participants, and because such a commitment is critical to the practical success of the stepping stone theory, the best policy for maximizing investment is to accelerate the date of forbearance for existing and new access technologies.Technology and Industry

Passenger Air Service in Michigan’s Upper Peninsula: Overview and Analysis

[Excerpt] Rural America needs safe, efficient, reliable, and accessible passenger air service. Federal government subsidies have long been necessary to assure that residents in smaller, less profitable markets have access to the nation’s transportation network. That access is necessary for a community’s economic health, is arguably a right of all taxpayers and residents, and is in public interest. But market forces within the aviation industry are today driving a restructuring that may curtail or eliminate service to many communities in the nation. And the present political climate raises a serious question about the federal government’s continued commitment to the nation’s rural air transportation system. This report focuses on the state of passenger air service in Michigan’s Upper Peninsula [U.P.]. The U.P. is among the most geographically remote areas in the eastern half of the United States. The region’s economic, social, and cultural institutions are increasingly related to a global marketplace. These depend, in varying degrees, on access to the national and global transportation network. Scheduled, commercial passenger air service is especially critical for this area too distant from passenger rail, without adequate commercial bus service, with few four-lane highways and very limited connection to the Interstate Highway system

Restructuring regulation of the rail industry for the public interest

Throughout the world, the rail industry historically has been one of the most extensively regulated of all sectors. Price, entry, exit, financial structure, accounting methods, vertical relations, and operating rules have all been subject to some form of government control. The public utility paradigm of government regulation has been applied on the assumption that the economic characteristics of the rail industry preclude competitive organization or the need for market responsiveness. In the past three decades, however, policymakers and economists have become increasingly critical of traditional regulation of the rail industry. It is generally accepted that in markets where rail carriers seek to meet demand, there is often effective competition, and that government restrictions on the structure and conduct of firms in this industry impose considerable costs on society. Misguided regulatory policies have been blamed for the misallocation of freight traffic among competing modes of transport, excess capacity, excessive operating costs, and poor investment decisions. Regulatory controls have also shouldered much of the blame for the poor financial condition of railroads, the deterioration of rail plant, the suppression and delay of cost-reducing innovations, and the mediocre quality of rail service. The authors suggest principles for restructuring railroad regulation - indeed, for restructuring the orientation of railroad entries - for the sake of public interest. Much can be learned, they contend, from applying the principles of industrial organization to analysis of the rail industry. To assess the implications of policies aimed at rate regulation or infrastructure, it is essential to understand the nature of technology, costs, and demand in the rail industry. Government's role in relation to market behavior should be based explicitly on the economic and technological realities of the railroad marketplace. The authors say that restructuring along the lines they suggest - putting more emphasis on marketing effectiveness - will result in a more profitable railway with a better chance of covering its costs for commercial services. Changing the basis for noncommercial services as they suggest will make those services more effective at fulfilling public policy objectives, will eliminate an insuperable drain on revenues that condemns rails to inadequate investment, and will eliminate cross-subsidies that make it difficult for rails to compete against other modes of transport.Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Decentralization,Enterprise Development&Reform,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Markets and Market Access,Access to Markets

Advanced communications policy and adoption in rural Western Australia

Recent moves toward contestable universal service markets for rural areas raises issues of measuring the net cost of service provision. Measurement of net cost requires estimates of latent demand for advanced communications. This paper seeks for the first time to provide quantitative estimates of the magnitude of latent income pools available to carriers in rural WA. Estimates of latent expenditure on broadband services in rural WA are obtained using a combination of stated-preference and survey data. These expenditures increase with computer ownership, community isolation and information need. Further, the statistical model supports the commonly held belief that more distant populations have stronger information demands and are willing to pay for services. This finding suggests that carrier aversion to providing services to rural regions may not be justified on commercial grounds.Advanced communications; broadband service; internet rural access; universal service obligations

Reinsurance in State Health Reform

Based on the experiences of three states, formal modeling, quantitative estimates, and qualitative assessments, explores the impact of and issues involved in publicly funding reinsurance for insurers as a way to expand or maintain private coverage

How efficient is current infrastructure spending and pricing?

Infrastructure (Economics) ; Finance ; Pricing ; Public policy

Competitive Assessments for HAP Delivery of Mobile Services in Emerging Countries

In recent years, network deployment based on High Altitude Platforms (HAPs) has gained momentum through several initiatives where air vehicles and telecommunications payloads have been adapted and refined, resulting in more efficient and less expensive platforms. In this paper, we study HAP as an alternative or complementary fast-evolving technology to provide mobile services in rural areas of emerging countries, where business models need to be carefully tailored to the reality of their related markets. In these large areas with low user density, mobile services uptake is likely to be slowed by a service profitability which is in turn limited by a relatively low average revenue per user. Through three architectures enabling different business roles and using different terrestrial, HAP and satellite backhaul solutions, we devise how to use in an efficient and profitable fashion these multi-purpose aerial platforms, in complement to existing access and backhauling satellite or terrestrial technologies