Can Two-Part Tariffs
Promote Efficient
Investment in NGN?
Duarte Brito
Pedro Pereira
João Vareda
Next Generation Network
telecommunications network
packet-switched
optical fiber-to-the-home
2
Regulatory Policy
trade-off
static and dynamic efficiency
3
Linear Tariffs
trade-off may generate
dynamic inconsistency
4
Dynamic Consistency
Before Investment:
promise high access price
After Investment:
zero access price socially optimal
5
Commitment by Regulator
can commit for short periods
investment cycle very long
6
Theme
7
Can Two-Part Tariffs
solve Dynamic Inconsistency?
Fixed Part
welfare neutral
reward investment
8
Plan
(1) Model
(2) Comparing the Two Cases
(3) Mexico
(4) Conclusion
9
Part 1 of 4
Model
10
Firms
1 vertically integrated incumbent
1 retail entrant
needs access incumbent’s network
retail products differentiated (Hotelling)
11
Technology
12
incumbent´s investment ↑ quality
old network phased-out after investment
Pricing
13
two-part tariffs: retail and wholesale
only wholesale market regulated
Timing: Commitment Game
(1) regulator sets all access tariffs
(2) incumbent decides if invests
(3) entrant decides if exits
(4) retail competition
14
Timing: No-Commitment Game
15
(1) regulator sets access tariff to old
(2) incumbent decides if invests
(3) regulator sets access tariff to new
(4) entrant decides if exits
(5) retail competition
16
Part 2 of 4
Comparison
of the two Cases
Investment Cost Low
17
games have same equilibrium
however…
entrant´s contribution very large
Investment Cost Low
access tariff
fixed part covers investment
linear part=marginal cost
incumbent invests
entrant stays
18
Investment Cost High
19
games have different equilibria
two-part tariffs of no avail
Regulatory Moratorium
with commitment
for intermediate costs
20
21
Part 3 of 4
Mexico
Background
was claimed Mexico needs
new backbone network
22
Identical Problems
problem investment new
backbone network
identical
problem investment new
local access network
23
Interpretation
regulatory policy
induce incumbent to invest
backbone network
24
Part 4 of 4
Conclusions
25
Conclusions
26
(1)
can TPT promote efficient investment?
(2)
if cost low, yes; if cost high, no
(3)
but entrant’s contribution very large