This paper, published on SSRN, considers a central issue in telecommunications regulation. What rules, if any, should regulators put in place to provide incentives for timely and efficient investment in NGA while, at the same time, preventing monopoly abuse – either by taking monopoly rents from end users or harming downstream competition? We focus on the regulatory environment in the EU in attempting to answer this question. But the proposals we make are equally relevant to the rest of the developed world.
There is a range of both active and passive remedies which regulators might use. We argue that, while passive remedies are important in enabling infrastructure-based competition, active (bitstream) remedies will be important for preserving competition in the supply of retail, NGA-based, products.
In particular, bitstream offers access seekers a way of reaching customers nation-wide at the same time as the national fixed incumbent for a relatively modest investment. This is especially important when competing for the revenues of multi-sited businesses. To regulate bitstream products effectively regulators might specify the price regulation principles which would apply to operators found to have significant market power (SMP) in NGA supply in advance of any market definition and SMP assessment.
To enable timely and efficient investment in NGA regulators should allow access providers to provide distinct NGA-based bitstream products to meet the needs of different segments of the end-user market and to then charge for these products at the wholesale level so as to reflect their value to end users rather than their costs. But regulators also need to put in place competitive safeguards. These might require access providers with SMP to supply all access seekers, including its own downstream retail business, on equivalent supply conditions and prevent them from exerting a price squeeze on access seekers. Access providers with SMP should also provide a price regulated bitstream product to replace unbundled local loops.
Transition measures are also important in moving from competition based on copper access to competition based on NGA access. Here we argue that regulators should:
- Remove obligations on access providers to offer legacy wholesale products at greenfield sites where they want to supply FTTH
- Not require access providers to compensate local loop unbundlers for any shortening of economic asset lives as a result of closure of the copper access networks but give reasonable minimum notice of such closures so as to allow an orderly transition to competition in an NGA world
- Allow incumbent fixed operators to shut down their copper networks.