The proposed regulatory policy differs substantially from the regulatory holiday called
for by Deutsche Telekom29 for two main reasons: 1) it does not require a removal of all
forms of regulation (access, non discrimination, transparency obligation may indeed be
preserved) but it simply envisages a more favourable rate of return on investments
undertaken in the volatile phase; 2) the timeframe of the lenient regulatory phase is to be set
according to the reduction in the volatility rather than being based on the operator actual
investment plan: if the established operator does not launch its service within a certain date,
the more favourable regulatory conditions will be foregone30.
The regulatory holiday scenario is modelled by subtracting to the NPV initial value
27.5% of the net cash flow realised over a six year period (down to €1,388)31, whereas the
value of the payout rate is left as in the forbearance case (5.5%). The regulatory holiday
scenario (bottom row; middle column) results in immediate investment, as in the
forbearance case. This can be explained by the fact that the regulatory intervention applies
only to the period when uncertainty on the project returns is gone: hence, it does not affect
the decision on whether to undertake the project.
If we vary the values of the parameters, the fugit time remains basically unaffected and
equal to zero. Only when the up-front cost increases, then the investment is delayed by
around two years also in the regulatory holiday scenario.
In all scenarios the terminal phase of the project is assumed to be fully competitive and
thus out of the scope of regulation32.
29 In Germany, it was intruduced through a specific amendment to the German Law of Telecommunications.
Such legal prevision has been fiercely opposed by the European Commission on the ground that the
established operators would be able to limit the availability of access of new entrants, undermining
competition in the market place. On this issue he EC has started an infringement procedure against Germany.
30 The regulatory holiday invoked by Deusche Telecom would be effective from the date of deployment.
31 The impact of regulation on NPV is measured as a percentage reduction of the cash flows accrued in the
period regulation operates. Due to discounting the absolute value of foregone cash flows in a sunset clause
scenario would be higher than absolute value of foregone cash flows due to a sunset clause policy. However
since the aim of the model is to compare how the two alternative regulatory regimes perform in terms of
incentives to invest with respect to their different time scopes we decided to neglect the discounting effect.
This is done by applying the same NPV reduction both under the regulatory holiday scenario and the sunset
clause scenario.
32 Note that in the sunset clause and in the regulatory holiday regimes, the length of the volatile and that of the
steady phase have been purportedly chosen to be the same in order to avoid that the model outcomes were
influenced by the different time length of the period subject to regulation.
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