Investment sharing in broadband networks

Abstract

This paper presents a model of competition between an incumbent firm and an Other Licensed Operator (OLO) in the broadband market, where the incumbent has an investment option to build a Next Generation network (NGN) and it can do so by making an investment sharing agreement with the OLO, or alone. Two different kinds of investment sharing contractual forms are analysed, a basic investment sharing, where no side-payment is given for the use of the NGN between co-investors, and joint-venture, where a side-payment is set by the co-investing firms. Results show that investment sharing can potentially be beneficial in terms of competition and investments, but the number of firms involved matters and so does the choice of the NGN access price, for insiders and outsiders of the agreement. Even when the presence of firms outside of the agreement force insiders to compete more fiercely, there might be a concern with the potential exclusion of the outsiders from the NGN.

The European Electronic Communications Code: A Critical Appraisal with a Focus on Incentivizing Investment in next Generation Broadband Networks

“…In particular, Cambini and Silvestri (2013) show that basic investment sharing leads to higher welfare as it ensures more competition than joint-venture and fairly high investment incentives. Joint-venture gives relatively higher investment incentives, but it carries more risks in terms of anticompetitive effects of the investment cooperation agreements potentially leading to a higher risk of foreclosure.…”

“…Silvestri (2012, 2013) use a similar model to Nitsche and Wiethaus (2011), but analyse a dynamic framework with vertically differentiated firms looking also to social, and not only consumer, welfare. In particular, Cambini and Silvestri (2013) study two different approaches of co-investment compensation mechanisms: basic investment sharing, where the firms share the investment cost and do not pay each other any compensation for the use of the NGA networks; joint-venture, where the firms share the investment cost and then set an internal access charge for the use of the NGA infrastructure that maximises their joint profits. These papers show that risk-sharing does indeed lead to higher welfare in comparison to 5 Whereas the term 'network sharing' typically applies to co-operation models in the mobile industry, the term 'co-investment' is typically used with respect to co-investing fixed network operators.…”

Geographic Regulation and Cooperative Investment in Next Generation Broadband Networks - A Review of Recent Literature and Practical Cases

“…Typically such a configuration would lead to intense downstream competition. Cambini and Silvestri (2013) call this basic investment sharing 65 . Also, in addition to these broad categories of cooperation an intermediate case is considered.…”

“…For instance, Nietsche Wiethaus 2011, Cambini and Silvestri (2012) and Cambini and Silvestri (2013) compare different exogenous risk sharing agreement options (traditional joint-ventures and basic sharing) to -alternative -traditional NGN regulation options (LRIC, FDC, marginal cost, free market, no access). Unlike Bourreau, Cambini, Hoernig (2013) these authors consider an incumbent with an existing copper network to which all players have non-discriminatory access at marginal cost (regulated).…”

“…Unlike Bourreau, Cambini, Hoernig (2013) these authors consider an incumbent with an existing copper network to which all players have non-discriminatory access at marginal cost (regulated). Except for Cambini and Silvestri (2013), these papers take into account uncertainty. We will now review the rest of the literature, considering the following broad category of models: Presence of uncertainty, differing ability of partners to sell NGN based products and the presence of outsiders.…”