The Need for a New Approach to Regulating Fixed Networks

Briglauer, Wolfgang and Vogelsang, Ingo (2009) The Need for a New Approach to Regulating Fixed Networks. Working Papers / Research Institute for Regulatory Economics, 2009,1. Forschungsinstitut für Regulierungsökonomie, WU Vienna University of Economics and Business, Vienna.


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The increasingly observable excess capacity in the fixed networks calls into question the established long-standing pricing standards for wholesale services based on forward-looking long-run incremental costs (FL-LRAIC). The FL-LRAIC standard has worked quite well in expanding markets, although even there price-squeeze problems have appeared. In contracting markets the price-squeeze issue, however, becomes paramount and lower prices both at the wholesale and retail levels would be efficient. This would favor a retail-minus approach (RM) under long-term contraction. Because both expansion and contraction could be relevant in the future, we propose an optional approach based on the wholesale price formula p = min(FL-LRAIC, RM). This will generally protect alternative competitors against price-squeeze while at the same time allowing the fixed-network incumbent full downward price flexibility. It also protects alternative competitors and end users against excessively high prices. Hence, implementing this option successfully at wholesale level would eliminate the need to regulate retail markets. The combination of RM and FL-LRAIC seems to be most realistic, because it is relatively simple and internationally partly tested already. We show that this option is superior to FL-LRAIC or RM alone and to other approaches, such as short-run marginal costs. We also consider a possible combination with capacity-based charging, which may have particular merits for converged services in next generation networks (NGNs).

Item Type: Paper
Keywords: fixed-network regulation / new approach / excess capacity / fixed-mobile substitution / relevant alternatives / evaluation
Classification Codes: JEL L 43, L 51, L 96 ; RVK QR 720
Divisions: Forschungsinstitute > Regulierungsökonomie
Depositing User: Repository Administrator
Date Deposited: 14 Jan 2010 09:31
Last Modified: 22 Oct 2019 00:41


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