If you want fibre… should you lower the price of copper?

Motivated by a desire to deliver high speed broadband to European citizens there is an active debate in Europe over how copper and fibre should be regulated during the transition to fibre. The rhetorical title of this paper is based on a proposition promoted by some in Europe – the price of copper should be lowered, it is claimed, in order to promote fibre investment. Two broad approaches have been pursued globally in relation to fibre deployment – state financing and deregulation.
This paper considers the question of investment incentives and their relationship to pricing during transition. The relationship between the price of copper and fibre investment is considered both in terms of the linkage between the prices of the two products (which are assumed to be partial substitutes) and in terms of the anticipated impact on investor expectations. We conclude that lowering the price of copper could be expected to harm investment prospects in relation to fibre. We also conclude that allowing flexibility in relation to fibre prices could be expected to encourage investment in fibre.