Do we (still) need to regulate fixed network retail markets?
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Abstract
In the beginning of fixed network liberalisation in Europe in the late 1990s, the main
concern of regulators was to lower calls prices. This was done by introducing wholesale
regulation and promoting service based competition. Some years later, the concern of
some regulators turned from too high calls prices to too low calls prices which might
‘squeeze’ entrants out of the market. We look at a simple model in which this development
is explained by increasing competitive pressure from an ‘outside opportunity’, e.g. mobile
telephony. We conclude that a margin squeeze is not necessarily used by the incumbent as
a device to drive competitors out of the market and increase market power but can also
result from increased inter-model competition. If this is the case, we argue that regulators
should consider alternatives to cost oriented access prices such as retail minus or complete
deregulation.
Keywords
price squeeze, telecommunications, fixed networks, vertical integration, access regulation, foreclosure