Access Price Regulation, Investment and Entry in Telecommunications

Abstract

We consider a model with a vertically integrated monopolist network provider who faces rival operators in the retail market. We examine the network operator’s incentives to invest in a technology that increases demand. We find that investments are below the social optimum even when there is no regulation, and access price regulation further reduces investment incentives. The underinvestment problem may have negative effects on the viability of competition and in the presence of access price regulation, rivals are most likely to be foreclosed when they would bring highest benefits to consumers.