Investment under uncertainty and regulation of new access networks

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical SummaryContractual and regulatory provisions for access affect incentives to invest in an upgraded network and, in particular, a next-generation access network. Investment decisions are made under uncertainty and have to be made over time. This papers provides a framework for taking uncertainty, risk aversion, and the timing of investment explicitly into account. First, it evaluates various access price policies in a framework in which the incremental value over the legacy network is uncertain. Second, introducing risk aversion, the access price structure turns out to be critical for the risk profile of the investing telecom operator and of the access-seeking alternative operator. Third, some implications of the time structure of access payments are derived. AbstractContractual and regulatory provisions for access affect incentives to invest in an upgraded network and, in particular, a next-generation access network. Investment decisions are made under uncertainty and have to be made over time. This papers provides a framework for taking uncertainty, risk aversion, and the timing of investment explicitly into account. First, it evaluates various access price policies in a framework in which the incremental value over the legacy network is uncertain. Second, introducing risk aversion, the access price structure turns out to be critical for the risk profile of the investing telecom operator and of the access-seeking alternative operator. Third, some implications of the time structure of access payments are derived.

The European Electronic Communications Code: A critical appraisal with a focus on incentivizing investment in next generation broadband networks

“…NRAs often push for imposing open co-investment agreements aiming at giving later entrants the chance to enter the co-investment agreement. Although not directly addressed by the authors, the above results could easily be applied; i.e., granting late 8 This assumption makes the paper different from other studies that specifically look at the 'collusive' effect of a co-investment agreement (see, e.g., Inderst and Peitz, 2013;Krämer and Vogelsang, 2016). entrants the possibility to 'wait and see' whether market demand expands -and only committing to invest when this eventually happens -invites cream-skimming behavior. This, in turn, reduces or even eliminates the investment incentives for early investors who have to bear the entire risk and uncertainty.…”

Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remedies

“…In the literature, several formal studies have investigated the impact of access regulation on investment incentives by incumbent and entrant firms in the presence of demand uncertainty, for example, Hori and Mizuno (2006), Klumpp and Su (2010), and Inderst and Peitz (2013). In a recent companion paper, Bourreau et al (2019), we compare various regulated access schemes under demand uncertainty.…”

Regulating networks in decline

“…ity in fixed telecommunications networks. Bourreau et al (2012), Inderst and Peitz (2014) and Briglauer (2015) examine the related issue of how access regulation affects the incentives of incumbent and entrant firms to invest in alternative new generation networks. Faruqui (2013Faruqui ( , 2014 and Hanser and Horn (2014) examine the impacts of declining demand for traditional electricity networks, while Sioshansi (2014) focuses on the wider implications of the growth of distributed generation for the electricity industry.…”