Dynamic access pricing and investment in alternative infrastructures

We analyze the impact of access price regulation on the entrants' investment in network quality. We consider a dynamic framework where developing an alternative infrastructure requires both time and a captive customer base. We show that a multi-period schedule where regulated access charges rise over time is critical to foster efficient infrastructure investment. Nonetheless, a sunset clause on regulation dilutes investment incentives. We also show that, in the absence of regulatory commitment, the time-dependent schedule may not be robust to sequential entry. Hence, to preserve investment by early entrants, access charges should depend both on time and the entry period, in such a way that each entrant is provided with the same dynamic access conditions. The relevance of these issues carries over to the prospective deployment of new access infrastructures, the so-called Next Generation Access networks. © 2009 Elsevier B.V. All rights reserved.