The ladder of investment in Spain: some comments

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The ladder of investment in Spain some comments

• Elena Zoido, LECG
• NEREC/FEDEA Telecoms Lunch WorkshopMadrid, March
  17 2009

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Competition in broadband
Total broadband
Cable and other infrastructures
DSL
Inter-platform competition
Incumbent wholesale
ULL
Facilities-basedintra-platform
Incumbent retail
Bitstream access and resale
Service-basedintra-platform
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Access regulation and the ladder of investment
Access Regulation
Competition
Investment
Penetration
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Availability of access products
Resale BSA Shared ULL Full ULL
Spain 1999 1999 2001 2001
France 1999 2003 2002 2001
Italy x 2000 2001 2000
Portugal x 2000 2001 2001
UK 2000 2002 2000 2000
Germany 2004 x 2001 1998
Netherlands x x 2001 2000
Ireland x 2002 2002 2002
Norway x 2001 2000 2000
Source ERG, Broadband market competition report,
May 2005.
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Intra-platform competition
Source Communications Committee, European
Commission
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Inter-platform competition
Source CMT, Informe Anual 2007
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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?

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Broadband penetration
Source European Commission, 13th Implementation
Report
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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)

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Broadband penetration
Source Authors based on data from Eurostat.
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Broadband penetration
Source Authors based on data from Eurostat.
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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!!!

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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

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Thank you
Elena Zoido ezoido_at_lecg.com 34 91 594 7984
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Intra-platform competition
Source Communications Committee, European
Commission
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Inter-platform competition
Source CMT, Informe Anual 2007
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LLU penetration
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Broadband penetration
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Market shares
Lines 06 Share () Lines 07 Share
Telefónica 3.717.677 55,5 4.538.644 56,2
Ono 1.144.724 17,1 1.312.106 16,3
Orange 640.082 9,6 661.393 8,2
Ya.com 352.796 5,3 460.672 5,7
Tele2 172.824 2,6 276.927 3,4
Jazztel 253.143 3,8 259.936 3,2
Euskaltel 147.484 2,2 174.064 2,2
R Cable 92.731 1,4 125.012 1,5
Telecable Asturias 72.612 1,1 83.794 1,0