Regulation and Investment in Network Industries: Evidence from European Telecoms

Michal Grajek and Lars-Hendrik Röller

Journal of Law and Economics, 2012, vol. 55, issue 1, 189 - 216

Abstract: We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering more than 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates different investment incentives for incumbents and entrants, a strategic interaction of entrants' and incumbents' investments, and endogenous regulation. We find access regulation to have a negative effect on both total industry and individual carrier investment. Thus, promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher investments by incumbents encourage regulated access provision.

Date: 2012
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Working Paper: Regulation and investment in network industries: Evidence from European telecoms (2009)
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