Regulation and Entry into Telecommunications Markets

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Figures......Page 9
Tables......Page 11
Preface......Page 13
Frequently used symbols......Page 15
Warranty disclaimer......Page 17
1.1 Motivation......Page 19
1.2 Contribution to existing literature......Page 21
1.3.1 Game theory and industrial organization......Page 22
1.3.2 Simulation models......Page 23
1.4 Outline......Page 24
2.1.1 Circuit-switched networks......Page 28
2.1.2 Other networks......Page 30
2.1.3 Network interconnection and access to end users......Page 31
2.2 Telecommunications markets......Page 32
2.2.1 The European Union......Page 33
2.2.2 An example: the Netherlands......Page 39
2.2.3 The United States......Page 41
2.3.1 Market structure and competition in telecommunications......Page 43
2.3.2 Regulation and one-way access......Page 50
2.3.3 Access price regulation: two-way access......Page 54
3.1 Introduction......Page 56
3.2.1 Operators......Page 57
3.2.2 Demand, switching costs, and realized market shares......Page 58
3.2.3 Costs, traffic volumes, and profits......Page 63
3.2.4 Surplus and welfare......Page 66
3.2.5 Equilibrium concept......Page 67
3.3.1 Equilibrium properties......Page 69
3.3.2 Equilibrium existence and uniqueness; profit neutrality......Page 70
3.3.3 Corner solutions......Page 72
3.4.1 Equilibrium and Newton’s method......Page 73
3.4.2 Parameter values......Page 74
3.5.1 Cost-based access prices......Page 76
3.5.2 Reciprocal access prices......Page 77
3.5.3 Asymmetric access prices......Page 80
3.6.1 Mature market......Page 82
3.6.2 Access price regulation in an infant market......Page 85
3.7.1 Types of retail price caps......Page 86
3.7.2 Price cap on the subscription fee......Page 88
3.7.3 Price cap on the per-minute price......Page 89
3.7.4 Separate price caps on per-minute price and subscription fee......Page 91
3.7.5 Joint price caps......Page 92
3.7.6 Comparison between different versions of price cap regulation......Page 93
3.8 Summary......Page 94
Part 1: Uniqueness of any equilibrium candidate......Page 96
Part 2: Existence of an equilibrium......Page 97
APPENDIX 3.2: NEWTON’S METHOD......Page 99
APPENDIX 3.3: ALTERNATIVE FORMULATION – ASYMMETRIC, DIFFERENTIATED NETWORKS......Page 102
APPENDIX 3.4: NET UTILITIES UNDER ASYMMETRIC ACCESS PRICE REGULATION......Page 103
4.1 Introduction......Page 105
4.2.1 Motivation......Page 106
4.2.2 Repeated short-run profit maximization......Page 107
4.2.3 Evolution of the fixed utility levels of a connection......Page 109
4.3 Cost-based access price regulation......Page 110
4.4 Reciprocal terminating access price......Page 113
4.5 Asymmetric terminating access prices......Page 115
4.6.1 Retail price caps and competition......Page 118
4.6.2 Reciprocal access price and retail price caps......Page 119
4.6.3 Asymmetric access prices and a price cap on subscription fee......Page 121
4.6.4 Asymmetric access price regulation and a price cap on the per-minute price......Page 123
4.7.1 Asymmetries between incumbent and entrant......Page 125
4.7.2 Installed consumer base and fixed utility......Page 126
4.7.4 Operators as intertemporal maximizers......Page 127
4.8 Summary......Page 129
APPENDIX 4.2: INTERTEMPORAL MAXIMIZATION AND MONOTONE COMPARATIVE STATICS......Page 130
5.1 Introduction......Page 132
5.2.1 Cost-based regulation......Page 134
5.2.2 Lease price of the incumbent’s local line......Page 135
5.2.3 Asymmetric access price regulation......Page 136
5.2.5 Combined access and retail price regulation of the incumbent......Page 137
5.3 Carrier-select-based competition......Page 139
5.3.1 The incumbent’s market power......Page 140
5.3.2 Cost-based originating and terminating access prices......Page 141
5.3.3 Access markup......Page 143
5.3.5 Price cap and access markup......Page 145
5.3.6 Capacity shortage of carrier-select service......Page 147
5.3.7 Capacity shortage and price cap......Page 149
5.3.8 Pure resale......Page 151
5.4.1 Comparing different entry modes......Page 152
5.4.2 Facilities-based versus unbundling-based entry......Page 153
5.4.3 Carrier-select-based entry versus entry with direct access to the local loop......Page 154
5.5 Summary......Page 155
APPENDIX 5.1: LOCAL LOOP UNBUNDLING......Page 157
APPENDIX 5.2: CARRIER-SELECT-BASED COMPETITION......Page 158
6.1 Introduction......Page 160
6.2.1 Cost-based and reciprocal access price regulation......Page 161
6.2.2 Asymmetric access price regulation......Page 165
6.2.3 Price cap regulation......Page 170
6.2.4 Linear prices and local loop unbundling......Page 171
6.3 Flat fees......Page 175
6.3.1 Access price regulation......Page 176
6.3.2 Only the incumbent charges a flat fee......Page 178
6.3.4 Price cap on subscription fee......Page 179
6.3.5 Local loop unbundling and lease price regulation......Page 180
6.4.1 Balanced calling patterns: market shares and profits......Page 181
6.4.2 Reciprocal access pricing under symmetry......Page 183
6.4.3 Infant market......Page 185
6.4.4 Unbalanced calling patterns......Page 187
6.5 Summary......Page 188
APPENDIX 6.1: LINEAR PRICING AND GLOBAL MAXIMIZERS......Page 190
Part 1: Cross-derivatives and monotone comparative statics......Page 193
Part 2: Evaluation of cross-derivatives......Page 195
APPENDIX 6.3: LINEAR PRICING–RECIPROCAL ACCESS PRICES AND LOCAL LOOP UNBUNDLING......Page 198
APPENDIX 6.5: EXISTENCE AND UNIQUENESS UNDER TERMINATION-BASED PRICE DISCRIMINATION AND RECIPROCAL ACCESS PRICES......Page 199
Part 2: Monotone comparative statics......Page 201
7.1 Introduction......Page 203
7.2 The model with a segmented market......Page 204
7.3 Price discrimination......Page 207
7.3.1 Observations in a symmetric market......Page 208
7.3.2 Segment-specific demand......Page 210
7.3.3 The role of calling patterns......Page 214
7.3.4 Other demand-side asymmetries......Page 221
7.3.5 Segment-specific costs......Page 224
7.4 Regulatory restrictions on price discrimination......Page 226
7.5 Summary......Page 231
APPENDIX 7.1......Page 232
8.1 Introduction......Page 234
8.2.1 Specification of the model......Page 235
8.2.2 Asymmetries between segments......Page 236
8.2.3 Retail price regulation and price discrimination versus uniform pricing......Page 237
8.2.4 Cost-based prices and recovery of fixed costs in the monopoly segment......Page 240
8.2.5 Access price regulation in the competitive segment......Page 244
8.3 Partial LLU-based entry......Page 247
8.4 Partial carrier-select-based entry......Page 249
8.5 Mixed entry......Page 251
8.5.1 Mixed facilities-based and LLU-based entry......Page 252
8.5.2 Mixed facilities-based and carrier-select-based entry......Page 254
8.6 Summary......Page 256
9 Concluding remarks......Page 259
9.1 Efficient versus inefficient entrants......Page 260
9.2 Operators’ market strategies and regulation......Page 261
9.3 Market uncertainty and regulatory response......Page 263
9.4 Dynamic investment and regulatory uncertainty......Page 264
9.5 Regulation versus competition policy......Page 265
9.6 Beyond fixed voice telephony......Page 266
Appendix: sample simulation program......Page 270
Bibliography......Page 283
Index......Page 289