alternative operators according to the Ecta scorecard. Hence the future revenues stream of
the established operator (the NPV) will be reduced by 35% with respect to the baseline case
of a single monopolist33.
The opening up of the market to competition will affect the timing of the investment
decision vis-à-vis the case of a single monopolist. Two opposite forces are at work here.
One is the already mentioned reduction in future revenues due to the existence of a
competitor: this is tantamount to a (negative) income effect, which decreases the NPV and
puts off the beginning of the investment.
The second force depends on who is the first to invest, whether the incumbent or the
alternative operator. If the established operator is the first mover, prima facie we can
assume that the operator incurs in no specific cost in order to attract its customer base, vis-
à-vis the monopolist case34. In other words, the demand for NGN services requires no
particular advertising campaign for the first mover.
Let us suppose now that the established operator has to catch up with a competitor which
has already started to invest in next generation networks. Thus, in order to reach its long-
term market share which we assume to be equal to 65%, the incumbent needs to make an
additional effort to subtract part of the clientèle from the alternative operator, by facing
extra costs. We assume that these costs are identical to the ones that an operator faces in
order to conquer customers from competitors in the broadband market, i.e. xx euro per
client. These costs would reduce the payout by an equal amount: hence it is in the interest
of the operator to speed up the beginning of the investment with respect to the monopoly
case. Hence this effect goes in opposite direction than the reduction in NPV.
Such a cost asymmetry between being a first or a second mover is a bit artificial of
course. It is more likely that both operators face subscriber acquisition costs (maybe not of
the same amount) independently of whether they act as first or second. We would need a
full blown theoretical model in order to study how the two operators can leapfrog each
other in this case, while here we take the pecking odere for granted. However it is still
33 The implicit assumption is that the price of NGN access and services is the same for the established and the
alternative operators
34 Excluding the reduction in NPV generated by the presence of a competitor
38