Access regulation and geographic deployment of a new generation infrastructure

This paper addresses the impact of regulatory policy on levels of infrastructure deployment and derived welfare in the telecommunications sector. The model considers two potentially coexisting and partially competing technologies (the “old generation network” – OGN – and the “new” generation network – NGN). This framework allows us to show that the “regulation defining access charge in order to maximize infrastructure deployment” is strictly equivalent to the case in which “no regulation applies”. We also derive from the model that these two types of regulation induce higher social welfare, but lower numbers of NGN consumers, compared to the “ex post access prices” regulation. Finally, we show that the level of infrastructure deployment (as well as social welfare and number of NGN consumers) will be highest if both investment and access charge decisions are taken by the welfare maximizing regulator. This suggests that the social optimum will be achieved through a calls-for-tender process that includes deployment and access charge requirements.