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