Growth driver information and communication technologies: Modern communication technologies are important trade and production factors for industrial nations such as Germany. Germany has excellent potential for even greater economic growth by increasing the deployment of information and communication technologies. By 2011, onethird of Germany’s increased productivity is expected to be due to adoption of broadband technologies and corresponding services.
Top-down development of facility-based competition: Due to the adoption of broadband technologies, narrowband voice telephony has become less important. The convergence of all media to IP-based transmission will result in an increased demand for transmission capacities and therefore creates the potential for facility-based market entry. To satisfy this increased demand, a new network architecture is needed. Transition from traditional PSTN to an IP-based data network occurs in stages, based on capacity requirements. The changeover should begin on the highest concentration levels of the network and end by the last mile which connects the end users to the network.
The technologically determined transitory character of the regulation requires legal sunset-rules: During the transition period, new competitors will rely on access to elementary components of the incumbent’s traditional network infrastructure (e.g., Deutsche Telekom). Sector-specific regulation can guarantee access to these network components such that facility-based, i.e., sustainable competition can evolve. As the old network components gradually disappear, the need for regulation will also disappear. Eventually, legal sunset-rules will be required.
Facility-based competition between neck-and-neck competitors does not require regulation: The cost structure of the telecommunication sector will lead to a market structure comprised of only a few facility-based competitors. This trend is already apparent now, as we witness market consolidation and the emergence of only a few, but large, facility-based competitors. Thus, neck-and-neck competition with the incumbent (e.g. Deutsche Telekom) is already occurring. Competition between neck-and-neck competitors stimulates investments and, in time, makes sector-specific regulation unnecessary.
No regulation of new access technologies in urban agglomeration: In urban agglomerations, new access technologies (e.g., VDSL) do not need to be regulated. The last mile to the end user represents the distribution channel for capacities that have been built for the higher concentration levels of the network. Gradually replacing copper wire with fiber optics all the way down the last mile results in higher quality access and, therefore, improved distribution opportunities and an improved position in the market for capacities. The functional separation of the last mile from higher levels of the network architecture has to be rejected since the capacities that have been built for higher concentration levels lead to incentives to invest in the last mile. Due to their regional strength (e.g., municipal utilities) or their international integration (e.g., Telefonica), the incumbent’s (e.g., Deutsche Telekom) facility-based competitors enjoy a strong market position that allows them to credibly threaten the incumbent with investing in their own fiber optic access network.
Symmetric regulation of the access to existing ducts: Providing access to existing ducts ensures symmetric costs for investment in the last mile and, therefore, equal opportunities for the incumbent (e.g., Deutsche Telekom) and its competitors. When granting access to already existing ducts, symmetric access to all possible alternatives is needed. Symmetric access to all existing ducts not only supports a strategy very similar to that of Deutsche Telekom’s investment in VDSL but also supports FFTB/FTTH strategies.
Setting incentive-compatible access prices in less agglomerated regions: In less agglomerated regions, there is less competitive pressure in the concentration network, leading to less competition in the last mile. Here, regulated access to new network infrastructure can increase welfare. In setting the access price, the focus should be on the balance between static and dynamic efficiency, i.e., incentives for investors must be high enough to stipulate early investment in new access network infrastructure.
Promotion of network investment in rural areas: In very rural areas, where investing in the access network is not profitable, it could be possible to nevertheless attract investment in the access network via regional structural funds. Due to the positive externalities on urban agglomeration, all network providers serving an urban agglomeration should contribute to these funds.
No further centralization of regulatory authority to the EU-level: The regional differences in the point of origin and development of facility-based competition suggest that geographically differentiated regulation is most appropriate. Therefore, regulation should be designed to be as decentralized as possible to take into consideration the particular requirements of different countries and regions. Hence, further centralization of regulatory authority to the EU-level is discouraged.
Regulierung in Telekommunikationsmärkten: Technologische Dynamik und Wettbewerbspotenziale Nina Czernich, Oliver Falck, Thomas Kießl and Tobias Kretschmer ifo Beiträge zur Wirtschaftsforschung Volume 32 Munich: Ifo Institute for Economic Research, 2008; 107 p.; 20,- EUR. ISBN-10: 3-88512-479-3 ISBN-13: 978-3-88512-479-5
