Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Fixed Broadband Industry
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In the telecommunications industry, the ladder-of-investment approach claims that service-based competition (when entrants lease access to incumbents’ facilities) can serve as a “stepping stone” for facility-based entry (when entrants build their own infrastructures to provide services). In this paper, we build an empirical model that encompasses a complete ladder-of-investment, composed of three rungs: bitstream access, local loop unbundling and new access facilities. Using data from the European Commission’s “Broadband access in the EU” reports covering 15 European member states for 17 semesters, we test the ladder-of-investment hypothesis. We find no empirical support for this hypothesis, that is, for the transition from local loop unbundling to new access infrastructures, and weak empirical support for the transition from bitstream access lines to local loop unbundling. These results are robust when we take into account the migration effect, the number of access rungs, the development of broadband cable, the regulatory performance, and the evolution of local loop unbundling prices.
KeywordsAccess regulation Investment Next generation access networks Telecommunications
We would like to thank Steffen Hoernig, Patrick Rey, and Tommaso Valletti for their comments on an initial version of this paper, as well as participants at the 2010 EuroCPR Conference (Brussels, Belgium), the 2010 Econ@Tel COST Workshop (Ghent, Belgium), the 2010 ITS biennal Conference (Tokyo, Japan), the 2010 ZEW ICT Conference (Mannheim, Germany), the 2010 EARIE Conference (Istanbul, Turkey), the 2010 AFSE Conference (Nanterre, France), and the 2010 ITS PhD Seminar (Copenhagen, Denmark). We also thank the Editor, Lawrence J. White, and two anonymous referees for their valuable comments and suggestions. This paper received financial support from France Telecom/Orange.
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