impose permanent regulation6 wholesale obligations on the next generation networks, such
as the ones which exist presently on traditional networks: typically the obligation to provide
access to the established operator network elements (for instance, the local loop) at a price
which corresponds the full distributed cost of the service, as recorded in the regulatory
accounting. If this were the case, one could surmise that established operators face fewer
incentives to build NGNs, as regulation will immediately wipe out the quasi-rents arising
from the deployment of new infrastructures. Symmetrically, the existence of wholesale
obligations, and their scope, will also condition the behaviour of the new entrants, which
may either decide to make major investments or to exploit the established operators' NGN
as the latter are gradually installed (free riding behaviour), thus side-stepping significant
fixed costs.
On the other hand, regulatory bodies are concerned about removing any initial
conditions of major advantage to the established operator that could preclude the
development of a competitive market. The potential advantages are represented, on the one
hand, by the exclusive availability of some network elements (such as reconnections from
the cabinet to the user's premises or the ducts in which to install the fibre); on the other
hand, by the control of an initial customer base which could enable the established operator
to reach significant network economies before its competitors. For these reasons, regulators
such as the European Commission are quite hostile to regulatory forbearance and regulatory
holidays, that is the absence of all obligations on NGNs for at least a pre-defined period of
time, as imposed by the German telecommunications bill (and fiercely opposed by the
Commission)7.
2.2 - Literature review
In highly capital intensive industries the launch of a new service or a technology often
involves lumpy investments. Such investments are not necessarily carried out at the time
when the investment opportunity arises, even if they are profitable (in the sense that they
6 As we have defined it at page 33.
7
See the European Commission recent Impact Assessment for details (European Commission, 2007b).