Long term versus short term regulation: A model of investment behaviors. in the Telecommunications Sector

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1 Long erm versus shor erm regulaion: A model of invesmen behaviors in he Telecommunicaions Secor David Flacher & Hugues Jennequin Paris 13 Universiy CEPN CNRS UMR 7115 France david@flacher.fr jennequin@seg.univ-paris13.fr ABSTRACT We address he quesion of he regulaion crieria ha should be used in order o maximize welfare due o FTTH (Fiber To The Home developmen. To answer his quesion, we propose a model comparing radiional asymmerical regulaion o he absence of such regulaion. The model is deailed for he case of wo firms. The firs one represens he operaors ha can (or ha are willing o inves ino FTTH. The second one represens he operaors ha are no ready (or ha do no wan o ake his risk. The model, inspired from Foros (004 and Koakorpi (004, is exended o wo periods in order o capure a key dimension of he invesmens involved in he FTTH marke: We inroduce a dynamic effec of FTTH on he consumer uiliy, relaed o invesmens. In fac, in our game model, we make he assumpion ha consumers uiliy increase more in he second period ha in he firs one because such invesmens need ime o be fully efficien (he killer applicaions have o be found. Our simulaions show ha regulaing he FTTH local loop unbundling access price can be counerproducive no only from he oal welfare poin of view bu also from he consumer surplus one. The absence of radiional unbundling regulaion could hus be a beer opion, a leas during a long enough period. We finish he paper suggesing ha oher policies, such as indusrial policies, could provide an even beer regulaion ha no regulaion a all. KEYWORD Regulaion, FTTH, invesmen, elecommunicaions 1 INTRODUCTION Afer he opening o compeiion, in mos counries, he incumben has been submied o price regulaion of inerconnecion because of is significan marke power (SMP. The aim of his kind of regulaion was o faciliae he enry of compeiors on he marke. This was jusified by he exisence of an essenial faciliy (he local loop ha was no replicable. However, he case of opical fiber local loop is no he same as he one of exising copper local loop for a leas hree reasons: firsly, he FTTH (Fiber To The Home nework is (or will be buil afer he liberalizaion of he secor. All he operaors can poenially inves in his echnique. Secondly, due o boh compeiion and rapid echnical progress, he risk is imporan of invesing

2 a high amoun of money in FTTH. Indeed, new and cheaper echniques (and in paricular new xdsl or wireless ones could provide very close subsiues o FTTH and reduce drasically he expeced rae of reurn of FTTH invesors. Thirdly, if invesing in FTTH local loop is no an obligaion, he exisence of hose invesmens could simulae no only he elecommunicaions secor (pushing him owards a new era bu also he whole economy due o very srong expeced exernaliies. Therefore he regulaor should no add more uncerainy in his conex characerized on he one hand by high echnical and demand uncerainy bu also, on he oher hand, by a poenial boom of high broadband usages ha would benefi o he whole economy. Indeed, he decisions o inves depend o some exen on he regulaors decisions ha remain quie unclear a his ime in many counries. While counries like he USA, as Korea before, decided no o unbundle FTTH for a given period of ime, he majoriy of counries did no clearly decide. Recen works have discussed his problem of dynamic efficiency in regulaion. For Baake e al. [1], regulaion mus go beyond he SMP es, essenially based on he marke shares and on a shor erm perspecive, in order o secure operaors invesmen incenives and o preven invesors from abusing from heir marke power ogeher. OPTA [9] also proposes an analysis ha aims a providing a framework in favor of new infrasrucures characerized, in paricular, by regulaory holiday (i.e. forbearing from regulaion for a period of ime. The opposiion beween faciliy-based and service-based compeiion has also been addressed by Bourreau and Dogan [, 3]. In heir work, hey explain in paricular ha unbundling access prices should no be oo low since low prices would delay he adopion of new neworks and hus faciliy-based compeiion. Building new neworks could be dynamically efficien however since hey incorporae many radical innovaions. When looking in paricular a FTTH infrasrucures, wha should be he righ regulaion crieria o be used in he elecommunicaions secor for he coming periods? This quesion is paricularly imporan for several reasons. Firs, i is an economic and social sake: he long-erm developmen of he secor has o be, a he end, favorable o is users and o he whole economy. Second, i is a heoreical sake: regulaion models were mainly developed for he ransiion from a marke dominaed by he incumben (generally a public monopoly o a compeiion marke. Bu hese models ake oo lile accoun of he period following his ransiion. Many economiss consider ha ex ane regulaion should be replaced by ex pos regulaion while ohers consider ha ex ane regulaion remains necessary o ake ino accoun he specificiies of he secor, he marke failures bu also he emergence of new ypes of acors. Indeed, virual operaors, such as Skype, have an ambiguous impac on he secor: hey allow he developmen of new needs and of exising uses bu hey also enhance he problem of financing infrasrucures, R&D (which is paricularly imporan for he long-erm developmen of he secor and many services. How do he asymmerical regulaion influence invesmen paerns? Wha mus hen be he regulaor s behavior in order o guarany he righ paerns of invesmen? In his aricle, we propose a model ha aims a assessing he opporuniy o coninue applying asymmerical regulaion in order o maximize welfare due o FTTH invesmens. The model, inspired by he ones of Foros [7] and Koakorpi [8], relies on a game heory framework which capures consumers, operaors, and regulaors behaviors, providing a key exension. We assume ha he impacs of invesmens are differen in he shor and in he long erm, in order o inroduce

3 he fac ha invesmens need ime o be really efficien. The model is composed of wo ypes of operaors: he operaors invesing ino FTTH infrasrucures and he ones poenially ineresed in unbundling he FTTH local loop. The regulaor is classically ineresed in maximizing he welfare or, in a simplisic way, in maximizing he consumer surplus over he wo periods. This paper is a new version of Flacher & Jennequin [4]. This new version do no include he differeniaion beween incremenal and radical invesmens (ha is o say he difference beween commercial and infrasrucures invesmens bu focuses on a case in which he invesmens for building infrasrucures is no mainly deermined by consumers willingness o pay (WTP, bu also from he invesmens coss. The paper is organized as follows: we presen he model in Secion. We hen provide he resuls of simulaions and he main conclusions ha can be drawn (Secion 3. Finally, in Secion 4, we discuss he ineress, he limis and he possible exensions of his model. THE MODELEQUATION SECTION (NEXT.1 THE REGULATOR AND THE GAME FRAMEWORK The Naional Regulaion Auhoriy (NRA refers o he ex ane regulaion. In his model, is role is quie simple: a sage 0, he NRA announces if i will regulae unbundling access price of he FTTH local loop (R or no regulae i (NR. In he case of regulaion (R, he following sages are: Sage 1: he regulaor chooses he unbundling access prices of period T1 and T (ha maximizes he oal welfare; Sage : he operaors compee à la Courno in order o deermine he quaniies o be sold a period T1 and T. In he case of no regulaion (NR, he following sages are: Sage 1: he operaors invesing ino FTTH infrasrucures choose he unbundling access prices of period T1 and T (ha maximizes heir oal profi; Sage : he operaors compee à la Courno in order o deermine he quaniies o be sold a period T1 and T. The resoluion of he model in each case (R and NR is obained hrough backward inducion. Thus, he regulaor choose beween R and NR comparing he oal welfare in hose wo soluions: if he oal welfare (i.e. consumer surplus + operaors profis is higher in he regulaed case, he regulaor chooses o unbundled and o regulae unbundling access prices. In he oher case, i will decide o le operaors decide of heir prices on a commercial basis. Noe also ha we consider ha he invesmen only concerns he FTTH marke. In order o simplify he model, we will assume ha he oher broadband markes (ADSL, cable, 3G do no face any qualiy improvemens during period T1 and T so ha we can consider our problem ceeris paribus.

4 . Operaors invesmens Our model is composed of wo ypes of operaors (OP1 and OP, which are facing he opporuniy o inves on he FTTH marke. A he beginning, we assume ha here is no FTTH infrasrucure. We also assume ha he wo ypes of operaors do no play he same game : he OP1 ype can (and wans o inves in he infrasrucure while he OP ype canno (or do no wan o inves in he infrasrucure bu is ineresed in unbundling he FTTH local loop. OP1 is hus an inegraed firm while OP is no. This difference can be jusified in many ways. The mos convincing one is ha all he operaors do no have financial capaciies for huge invesmens like FTTH ones. Oher explanaions rely on he risk ha his kind of invesmens represens: echnical progress and innovaion are so rapid ha oher echniques han FTTH (especially wireless ones could emerge and make his one oo waseful. Moreover, developing such a nework needs skills ha all he operaors do no own. Therefore we consider ha, in each counry, he incumben and he very few big compeiors are of he OP1 ype. The ohers are of he OP ype. We assume ha he amoun of invesmens, denoed y, depends on he demand a period T since he uiliy (and hus he WTP and he number of consumers 1 is highes a period T. Thus: ( 1 y = θ q + q where θ is a consan and where he subscripions o OPi a period are denoed q i,..3 THE CONSUMERS We assume ha he consumers can be represened by heir WTP (i.e. heir uiliy, denoed by s for he basic broadband service (le say ADSL service. We assume ha s is uniformly disribued 0,u, wih u > 0. In order o simplify he noaions, we normalize he size of he populaion on [ ] by u, so ha we can assume ha populaion size is equal o u. Invesing in very high speed neworks such as FTTH increases consumers WTP for he basic s broadband service: u i,, for he service of operaor i is hus defined: o For he period T1: u s i,1 = s+, where is a consan represening he uiliy increase a period T1 due o he new infrasrucure; o For he period T: ( s ui, = s+ 1+ φi, where 1+ φi is a consan represening he effecs of he new infrasrucure a period T. 1 Q1 Q Q, denoing i he oal number of consumers a period Ti. Each consumer has only one choice: o subscribe or no o FTTH services.

5 To find he inverse demand funcions, le us denoe by p i, he service price of operaor i a period. The consumer characerized by s will choose: o OP1 a period if and only if u s s s s ;0 1, p1, > Max u, p, ; o OP a period if and only if u s s s s, p, > Max u1, p1, ;0 ; s s s s o no o subscribe if and only if Max u1, p1, ; u, p, < 0. Lemma 1: The oal number of consumers a period is Q = q1, + q, = u P, where ( P = p 1+ δ φ, i { 1, } is he qualiy adjused price. i,, i Corollary 1: The inverse demand funcion of he operaor i service a period is ( ( 1 δ φ i, = + +, i 3. p u Q Proof of Lemma 1 Assume prices ( p i, i { 1, } are fixed and consider he marginal consumer, i.e. he consumer for which s s u1, p1, = u, p,. We also have: ( 1 δ φ ( 1 δ φ 1, ( 1 δ,φ1, ( 1 δ,φ u p = u p s+ + p = s+ + p s s 1, 1,,,, 1 1,,, P = p + = p + (1.1 Since P is independen of s, all he consumers can be seen as marginal consumers, and we easily deduce: u p > s> P, hus s being uniformly disribued on [ 0,u ], i, i, 0 Q = u P 4. s Noe ha he poenial increase of he WTP ui, s is independen from he level of invesmens. However, his level is of course very imporan since i deermines he number of possible subscripions o FTTH. 3 δ i, j is he Kronecker symbol ( δi, j i j δi, j = 0 iff =, oherwise, = 0. 4 In fac, Q ( u P Populaion size =, and our normalizaion of populaion size yields Q. = u P u

6 .4 PROFIT FUNCTIONS Ri, C Denoing and i, respecively he revenues and coss of operaor i a period, he profi can be simply wrien Π = R C, i, i, i i,. Table 1 deails he expressions of R C and i,. R = p. q + d. q 1, 1, 1,, Table 1: Revenues and coss of OP1 and OP Revenues Coss ( ( δ φ = u+ 1 + Q. q +d. q R = p. q,,,, i 1,, ( u ( δ φ Q = + 1 +,. q, C µ y = cq. + δ. 1,,1 ( C, = d + cd. q, The unbundling price ha OP has o pay o OP1 for each unbundled line a period is denoed by d. Parameer c is a consan ha represens he marginal cos suppored by OP1 for each consumer using is nework. The oal cos for OP1 is hus ( 1,, c q + q = cq. The average cos of unbundling he loop ( DSLAM infrasrucure for FTTH local loop is denoed by c D. In order o simplify he model, we assume ha i is a consan. µ y is he cos of building he new infrasrucures, µ being a consan. The quadraic form of he invesmens is inspired from he one used by Foros [7] and Koakorpi [8]. This means ha he coss of exending he FTTH nework are growing more han proporionally respec o he exension iself: The firs lines in high densiy areas are always less expensive han he following ones..5 WELFARE FUNCTIONS The welfare funcion is classically given by: W = CS + PS where CS and PS are respecively he consumer and he producers surplus a period : u Q CS = ( s P ds = P PS i = Π { 1,} i,

7 .6 OTHER ASSUMPTIONS In order o have a consisen model, we mus make he following addiional assumpions. Assumpion 1: The profis a period mus be posiive (, 0 i Π, i { 1, } oherwise he producer prefers no o be acive on he marke a his period. The oal profi of each operaor on he wo periods mus be posiive for a similar reason ( Πi, 0, { 1, } i { 1,}. Assumpion : a each period, OP1 mus have a non-negaive price cos margin on is sale of inerconnecion o OP. Tha is o say: d 1 µθ q1q + q c+ and d c. q 1 Indeed: o A period T1, he Shapley value 5 allocaes o OP aciviy he following par of invesmens µθ coss: + q q 1 q µθ d c q q q q 1 ( The profi of OP1 generaed by he aciviy of OP is hus. I mus be posiive; o A period T, The profi of OP1 generaed by he aciviy of OP is ( d be posiive. c q. I mus also 5 We decided o choose he Shapley value allocaion since i corresponds well o accounabiliy procedures. Denoing ( 1, q C q he oal cos for OP1 due o he aciviy a period T (independen from he one of period T1, we derive from he heory ha Shapley Value is equal o: 1 1 C( q1, q C( q1,0 C( 0, q C( 0,0 C( + + 0,0.

8 .7 SUMMARY OF THE EQUATIONS AND CONSTRAINTS ( ( 1 p = u+ + δ φ Q i,, i (Prices (1. Q = q + q = u P (Toal quaniies a period (1.3 1,, ( P = p 1+ δ φ (Qualiy-adjused price (1.4 i,, i µθ Π 1, = ( u+ ( 1 + δ,φi Q. q1, + d. q, - cq. + δ,1. ( u ( 1 δ φ Q. q ( d c Π = q,,, D, ( 1 ( q + q 1 (Profis of OP1 (1.5 (Profis of OP (1.6 y = θ q + q (Invesmens for building he infrasrucure (1.7 W = CS + PS (Toal Welfare (1.8 Q CS = (Consumer surplus (1.9 PS i, i = Π { 1,} (Toal Profis (1.10 Under he consrains: { } i, 1, q, 0 Π, 0 Q Q 1 i i i { 1,} Π i, 0 d 1 µθ q1q + q c+ and d c q 1 3 RESULTS For our analysis, we compare on he one hand he case in which he NRA regulaes unbundling access price (R, and, on he oher hand, he case in which NRA does no regulae i (NR. 3.1 RESOLUTION OF THE MODEL The model is solved hrough backward inducion, as indicaed in Table.

9 Table : The backward inducion sages. Regulaion (R No regulaion (NR Sage Sage qi,1, qi, { 1,} (,, { 1,} Max Π q d j i, j, qi,1, qi, { 1,} (,, { 1,} Max Π q d j i, j, From he equaions sysem ( { } qi, = qi, qj,, d i, 1,, j i. We derive: qi, qi, ( d { 1,} Sage 1 Max W d d1, d { 1,} =. ( { 1,} From he equaions sysem we derive { } d, 1, as a funcion of he parameers. From he equaions sysem ( { } qi, = qi, qj,, d i, 1,, j i. We derive: qi, qi, ( d { 1,} Sage 1 Max Π d d1, d { 1,} 1, =. ( { 1,} From he equaions sysem we derive { } d, 1, as a funcion of he parameers. Noe ha, for he resoluion, we decided no o ake ino accoun he consrains for finding he expressions of he endogenous variables. Then, given a se of parameers, we check if he soluion maches he consrains. Oherwise, we search for corner soluions (which means finding he new appropriae expressions of he endogenous variables when one or many consrains are sauraed. 3. SIMULATIONS Since analyical expressions are oo complicaed, we provide here a few simulaions ha will help us undersanding he main resuls of he model. In order o choose a reasonable se of parameers, we consider a few condiions: o When a compeior wans o unbundle he local loop, he has oo inves for DSLAM equipmens and someimes for backbones. These coss are quie low compared o he invesmens in he local loop iself bu quie high compared o he marginal cos of producing he service. Thus, we assume ha c >> c; D o he respecive efficiencies of OP1 and OP should no be oo differen if we wan he model o be realisic OP1 and OP. Our simulaion will hus sar from a se of parameers in which φ φ ; 1 o an ineresing case is o sar from a case in which, on he one hand, OP prefers o produce - a leas a he period - if he access price is regulaed and, in which, on he oher hand, here is foreclosure if access prices are no regulaed: OP chooses no o be acive on he marke (neiher a he firs, nor a he second period. This case is very ineresing for us since i maches quie well he radiional fear for foreclosure of NRAs; o finally, in he regulaed case (R, he opimal unbundling access prices a periods T1 and T

10 ( d, d yields o he corner soluions, ha is o say access prices are cos-oriened (in 1 Assumpion, we have equaliies insead of inequaliies. The parameers chosen o fulfill hese condiions are: u = 1 = 1 φ 1 = 1 φ = 1 µ = 1 θ = 1 c = 0.1 c = 0.5 The following graphs illusrae he behavior of our model wih marginal variaions of he parameers. D 3..1 TOTAL WELFARE The firs resuls concern he comparison beween oal welfare in he no regulaed and in he NR NR regulaed cases. Graph 1 and Graph show how W1 + W and R R W1 + W varie when he value of a parameer varies around is iniial level. The cases defining he regulaed siuaion will be illusraed by he green curves. The red curve will indicae he non-regulaed equilibrium. When he red curve is above he green, i means ha he unregulaed case (NR is beer han he regulaed case (R; oherwise, he regulaor should prefer he R case. Abou he welfare analysis, NR NR R R we will have so W1 + W > W1 + W. Looking a he variaions of cos parameers (Graph 1, i is clear ha he NR case is always beer han he R case. When µ and θ increase higher coss of invesmens - (Graph 1-a & b, he relaive advanage of NR compared o R case increases. If we observe a decreasing oal welfare wih µ and θ, when he coss of invesmens increase, he regulaion seems reduce he level of welfare more han NR case. If µ decreases more han a given value (0.61, here, compeiion exis on he boh periods in he regulaed siuaion. OP chooses hen o supply elecom services in he firs period as well. In his siuaion, he bes oal welfare is sill he NR welfare 6. Idenical conclusions appear wih he θ analysis. For low values of θ ( θ < 0.76 here he OP produce on he periods 1 and bu his is insufficien o observe a bes oal welfare compared wih he NR case 7. More he invesmens need huge financing; more he NR case leads o a bes relaive oal welfare. The same indicaions appear wih he oher cos parameer of he OP1: c (Graph 1-c. Higher coss reduce he oal welfare. Moreover, he rise in c increases (slowly he relaive oal welfare beween NR and R cases, in favor wih NR. 6 The R oal welfare is above he NR for µ < The R oal welfare is above he NR for θ < 0.5.

11 When c D (average cos of unbundling he loop increases (Graph 1-d, he siuaion is always more favorable o he NR case, because c D is inerfering as an exogenous foreclosure parameer : if i is oo high ( c > 1.9 here, OP sops is aciviy and OP1 is a monopoly, like in D he NR case. Inversely, wih very low-values of c ( c < 0.3 here, he R case becomes more D D efficien 8. (a (b (c (d Graph 1: Impac of he variaion of cos parameers on he oal welfare in NR and R NR NR R R cases ( W1 + W and W1 + W. 8 In his paricular case, he OP choose o produce in he boh periods while he Shapley value is no necessary a he second period. The regulaor maximizes he welfare hen o deermine he unbundling price.

12 Analogous naural conclusions can be derived from he variaions of he efficiency parameers (Graph : when OP1 becomes more efficien (or when OP becomes less efficien in increasing consumers uiliy, he siuaion is always more favorable o he NR case. The NR choice appears o be he bes one excep wih a higher efficiency of OP. Indeed, he NR case becomes less efficien han he R case when OP1 becomes less efficien relaively o OP ( φ > 1.3 wih φ 1 = 1 here. See Graph -a. In his case, he regulaor should choose o regulae he unbundling access price. However, if he difference is oo high, OP1 chooses o sop is aciviy in he regulaed case ( φ > 1.38 here because of negaive profis. In he NR case, anoher ineresing siuaion appears when OP is paricularly efficien ( φ > 1.49 here. A his condiion, foreclosure disappears. The OP can produce a he period. The OP1 benefis hen high unbundling prices while OP can offer high-qualiy services o consumers wih higher selling prices and assume he unbundling price o pay o OP1. So he boh producers have posiive profis. Lasly, noe ha when he elemenary increase of consumer s uiliy due direcly o invesmens in infrasrucures (i.e. - Graph -b becomes higher, he difference beween NR and R cases becomes more favorable o he firs one again. Finally, from he variaions of cos parameers (Graph 1 and efficiency parameers (Graph, i is also clear ha he NR case is always beer han he R case, excep in hree cases: low coss of invesmen, low average cos of unbundling he loop and higher efficiency of OP. (a (b Graph : Impac of he variaion of efficiency parameers on he difference beween NR NR R R oal welfare in NR and R cases ( W1 + W W1 + W.

13 3.. Prices We have o analyze he selling prices a he boh periods. To analyze hese prices, we go on o compare he unregulaed and regulaed siuaions. Firs period The siuaion a he firs period is relaively clear. Indeed, in he regulaed case, OP are no acive a his period herefore, he selling prices resul from he only aciviy of OP1. The prices are idenical beween he wo siuaions. More precisely, he selling prices a his period are increasing wih u, and c respecively on he Graph 3. Thus, he higher willingness of consumers o pay, he increasing in he qualiy of he services and higher coss induce a rise in selling prices. Graph 3: Impac of he variaion of parameers on he firs period price ( p 1,1 Second period More ineresingly, he selling prices depend on hree new parameers a he second period: µ, θ and φ 9. Moreover, we can compare he boh siuaions: regulaed and non regulaed. OP produce a his period in he R case and selling prices are hen modified. The selling prices are always lower in he R case because of he presence of OP. However, he impacs of parameers differ on he difference beween he boh siuaions. If he increasing in u and induces a lower rise in he selling prices in he R case (Graph 4-a & b, conclusions are opposie wih c (Graph 4-c. Indeed, he marginal coss influence he unbundling price paid by OP o OP1. Thus, boh operaors are affeced by his increase. Wha is he siuaion wih he hree las parameers? The Graph 4-d o f replies o his quesion. Firs, he evoluions wih µ and θ are idenical. The selling prices are affeced in he same way. φ, he efficiency of OP supplying elecom services influences he selling prices of OP only, downwards. 9 We occul he impac of φ which is symmeric wih 1 φ.

14 (a (b (c (d (e Graph 4: Impac of he variaion of parameers on he firs period selling price ( p i, R and p i, NR

15 3..3 SUMMARY AND CONCLUSIONS ABOUT THE SIMULATIONS Looking a oal welfare, he choice no o regulae he FTTH local loop access appears he mos relevan one for a leas wo reasons. Firsly, he oal welfare is always favorable o ha choice, excep in hree cases: 1. if OP1 is significanly relaively less efficien han OP for providing uiliy increases o he consumers,. if he average cos of unbundling he loop is low enough, 3. if he coss of invesmen are low enough. These condiions seem opposie o he characerisics in he FTTH wih high coss, noably for invesmens. In hese condiions, regulaing unbundling access price would reduce he global welfare and hus he profi of OP1 han could be re-invesed in he secor or in he economy. Regulaing brings a higher gain for consumer surplus, bu his shor erm gain of consumer surplus could hus have a negaive impac on he longer erm one. 4 DISCUSSION AND CONCLUSION The model proposed in his aricle is an aemp o capure key aspecs concerning he invesmens in he FTTH nework, and more generally, in new elecommunicaions neworks. I aims a helping he regulaor o choose beween he alernaive of regulaing or no he FTTH local loop unbundling access price. This simple framework relies an imporan characerisic: We consider ha he effecs of he invesmens for building a new infrasrucure are differen in he shor and in he long erm. This dynamic aspec is indeed a key elemen ha he regulaors should ake ino accoun. We derive from simulaions ha regulaing he FTTH unbundling access price can be counerproducive (from he oal welfare poin of view. The absence of radiional unbundling regulaion hus seems o be a beer opion. Of course, his research should be deepening before drawing definiive conclusions. The model should firs be sudied wih oher ses of relevan parameers, in order o check how robus our deducions are and how realisic hey are. Among he possible research perspecives, we should inroduce a club effec in consumers uiliy funcion. I could also be relevan o capure oher aspecs of he FTTH invesmen problem: he iming problem (when should an operaor inves? seems o be an imporan one, he various operaors and he regulaor could have differen poins of view on he expeced effecs of FTTH a period T. We could also imagine assessing he impac of wo differen operaors invesing in FTTH facing operaors ha do no inves, or he possibiliy of oher ypes of invesmens (such as in Flacher & Jennequin [4]. In anoher direcion, he probable reacion of elecommunicaions operaors providing services hrough oher echnology should also be aken ino accoun. Bu, inuiively, mos of hese direcions seem o confirm our conclusions. We should also complee our model wih oher periods, in order o capure he possible ineres of regulaing FTTH local

16 loop afer a period of ime (i.e. afer T1 and T, especially if he invesor, proeced by foreclosure in he no regulaed case, decides o innovae less han is compeiors. Finally, we could consider he opporuniy of oher kinds of regulaion han he radiional one. A more unusual approach, bu maybe he mos ineresing one, could consis in building a conrac beween regulaors and invesors ha would guaranee no regulaion of access price (for a leas a period of ime provided ha a conracual par of OP1 profis due o he absence of access price regulaion is re-invesed in radical invesmens, i.e. in infrasrucure exension. Such an approach could be called an indusrial policy approach of regulaion. A firs approach in his direcion is provided by Flacher & Jennequin [5]. REFERENCE [1] P. Baake, U. Kamecke, C. Wey, A regulaory Framework for New Emerging Markes, Communicaions and Sraegies, n 60, 4h quarer, 005, [] M. Bourreau, P. Dogan "Unbundling he local loop", European Economic Review, vol.49, pp , 005. [3] M. Bourreau, P. Dogan "Regulaion and innovaion in he elecommunicaions indusry", Telecommunicaions Policy, vol.5, Issue 3, april, pp , 001. [4] D. Flacher, H. Jennequin, " A Model of invesmen and regulaion in he elecommunicaions secor: owards recommendaions", ITS Conference, Beijing, China, June, 006. [5] D. Flacher, H. Jennequin, Unbundling or no unbundling he local loop in he elecommunicaions secor: The case of FTTH infrasrucures, PET 006 Conference, Hanoi, Vienam, 006. [6] D. Flacher, H. Jennequin, "Is elecommunicaions regulaion efficien?: an inernaional perspecive", ITS Conference, Perh, Ausralia, Augus, 005. [7] Ø. Foros, "Sraegic Invesmens wih spillovers, verical inegraion and foreclosure in he broadband access marke", Inernaional Journal of Indusrial Organizaion, (1, pp1-4, 004. [8] K. Koakorpi, Access Price Regulaion, Invesmen and Enry in Telecommunicaions, Tampere Economic working Papers, 35, December, 004. [9] OPTA, Regulaing emerging markes?, Economic policy noe, No 5, April, 005.