The ladder of investment in Spain: some comments

1. The ladder of investment in Spain: some comments Elena Zoido, LECG NEREC/FEDEA Telecoms Lunch WorkshopMadrid, March 17 2009

2. Competition in broadband Total broadband Cable and other infrastructures Inter-platform competition DSL ULL Incumbent wholesale Facilities-basedintra-platform Incumbent retail Bitstream access and resale Service-basedintra-platform

3. Access regulation and the ladder of investment Access Regulation Competition Investment Penetration

4. Availability of access products Source: ERG, Broadband market competition report, May 2005.

5. Intra-platform competition Source: Communications Committee, European Commission

6. Inter-platform competition Source: CMT, Informe Anual 2007

7. Access regulation and investment • Incumbents • Access regulation limits potential cash flows and thus reduces the incumbents’ network investments. See Baake et al (2007), Kotakorpi et al (2006) • New entrants • Recent empirical work suggests that entry regulation discourages infrastructure investment. • Friederiszick, Grajek and Röller (2008): According to their simulations, European entrants in fixed-line would more than double their infrastructure over five years if access was not regulated • Waverman, Meschi, Reillier and Dasgupta (2007): Intense access regulation (lower ULL prices) weakens facilities-based competition. A reduction of 10 percent in LLU price causes a decrease of 18% in the share of alternative infrastructures. • “Natural experiment” in US (Hazlett, 2005) • Do entrants consider access services as substitutes for their own investments or is it too early to tell?

8. Broadband penetration Source: European Commission, 13th Implementation Report

9. Access regulation and penetration • US • Inter-platform competition is more conducive to diffusion than intra-platform competition: • Aron and Burnstein (2003) • Denni and Gruber (2005) • OECD countries • The form of access regulation matters – more extensive regulation sub-loop unbundling has a negative impact on penetration (Wallsten, 2006) • Inter-platform competition is a main driver of broadband penetration, and access-based intra-platform competition has an insignificant effect on diffusion (Bouckaert, van Dijk and Verboven, 2008) • European countries • Inverted U-relationship between cable market share and broadband penetration (Höffler, 2005)

10. Broadband penetration Source: Authors’ based on data from Eurostat.

11. Broadband penetration Source: Authors’ based on data from Eurostat.

12. Regulating access prices • Static v. dynamic efficiency • Standard access pricing rules (LRIC, ECPR) focus on efficient entry • Margin squeeze tests: should they be satisfied at each rung? • The theory does not require that all rungs are available • Multiple entry strategies • Complementarity of access products • Dynamics!!!

13. Transitory regulation? • Replicability of last mile • Is “three” viable? • Sustainable fragmentation? • Scope for differentiation and dilution of rents. Padilla and Oldale (2004) • Regional differences • Complementary use of access products, because some areas are unprofitable for entrants • Next generation networks • CMT Guidelines • Signs of deregulation • Ofcom

14. Elena Zoido ezoido@lecg.com +34 91 594 7984 Thank you

15. Intra-platform competition Source: Communications Committee, European Commission

16. Inter-platform competition Source: CMT, Informe Anual 2007

17. LLU penetration

18. Broadband penetration

19. Market shares