Speeding Up the Internet: Regulation and Investment in the European Fiber Optic Infrastructure

In this paper, we study how the coexistence of access regulations for legacy (copper) and fiber networks shapes the incentives to invest in fiber-based network infrastructures. To this end, we first develop a theoretical model that extends the existing literature by, among other things, considering alternative firms with proprietary legacy network (e.g., cable operators) and the presence of asymmetric mandated access to networks. In the empirical part, we test the theoretical predictions using a novel panel data from 27 EU member states pertaining to the last decade. Our main finding is that, in line with the theoretical results, stricter access regulations (i.e., a decrease in access price to legacy network and the adoption of fiber regulation) decrease the incumbent operators' fiber investments. The estimated magnitude of these effects is economically significant. On the other hand, cable operators, who are responsible for the largest share of investments in fiber, are not affected by access regulation. Our paper thus provides policy insights for the on-going revision of the EU regulation framework for the electronic communications industry

Competition and Market Strategies in the Swiss Fixed Telephony Market. An estimation of Swisscom’s dynamic residual demand curve.

Fixed telephony has long been a fundamentally important market for European telecommunications operators. The liberalisation and the introduction of regulation in the end of the 1990s, however, allowed new entrants to compete with incumbents at the retail level. A rapid price decline and a decline in revenues followed. Increased retail competition consequently led a number of national regulators to deregulate this market. In 2013, however, many European countries (including Switzerland) continued to have partially binding retail price regulation. More than a decade after liberalisation and the introduction of wholesale and retail price regulation, sufficient data is available to empirically measure the success of regulation and assess its continued necessity. This paper develops a market model based on a generalised version of the traditional “dominant firm – competitive fringe” model allowing the incumbent also more competitive conduct than that of a dominant firm. A system of simultaneous equations is developed and direct estimation of the incumbent‟s residual demand function is performed by instrumenting the market price by incumbent-specific cost shifting variables as well as other variables. Unlike earlier papers that assess market power in this market, this paper also adjusts the market model to ensure a sufficient level of cointegration and avoid spurious regression results. This necessitates introducing intertemporal effects. While the incumbent's conduct cannot be directly estimated using this framework, the concrete estimates show that residual demand is inelastic (long run price elasticity of residual demand of -0.12). Such a level of elasticity is, however, only compatible with a profit maximising incumbent in the case of largely competitive conduct (conduct parameter below 0.12 and therefore close to zero). It is therefore found that the Swiss incumbent acted rather competitively in the fixed telephony retail market in the period under review (2004-2012) and that (partial) retail price caps in place can no longer be justified on the basis of a lack of competition

Does regulation of basic broadband networks affect the adoption of new fiber-based broadband services?

This paper provides evidence on the decision of consumers to move from an “old” (copper-based) to a “new” (fiber-based) broadband technology, taking into account the impact of regulatory interventions imposed on the old technology. The analysis in this paper has been applied to a sample of EU25 countries using panel data from 2003 to 2015 on the adoption of fiber-based broadband technology by households and firms. Results show that an increase in the regulated price for accessing the old network favors consumer adoption of the new technology. In particular, we find that an increase in the unbundling price of 10% increases fiber-based adoption in the range of 0.7-1%. Our results also provide insights on the take-up rate of the new technology, i.e. on the ratio between adopted and deployed fiber-based services and networks. By comparing the quantitative effects of regulation, we find that an increase in the access price decreases the take-up rate, meaning that the impact on fiber coverage is stronger than on fiber adoption