The influence of market development and policies on telecommunication investment

Communications Investments Schools Information technology Economic development

This paper assembles some evidence on developments in investment by incumbent and alternative telecommunications operators during the period 2000-2005. The quality of data on investment is not in general sufficient to clearly differentiate between investment by new entrants and investment by incumbents. Definitional problems also exist in that the players in communication markets are no longer the traditional alternative operators providing voice services, but a range of service providers including Internet Service Providers and cable television service providers who, through cable modems, provide VoIP services and broadband access. As such it is much harder to make judgements about how policy impacts on investment. Although the period 2000-2005 coincides with the development of broadband in most OECD countries and the implementation of LLU, the paper does not try to show a correlation between investment and unbundling policies.

Part of the period coincides with the so called ?dot-com bubble? during which a large number of telecommunication operators speculated in Internet related activities over a period ranging roughly from 1998 to 2000. Any examination of the relationship between policies and investment needs to factor in the impact of the ?dot-com bubble?, including companies? acquisition of bankrupt carriers preceding it: although there is sufficient data since the ?dot-com bubble? burst 7 years ago. Some studies which tried to correlate policies and investment have tended to ignore the impact of the ?dot-com bubble? on investment.

Data on investment by new entrants is also important in order to determine to what extent service competition leads to facilities competition, and therefore results in further investment in networks. Arguments, mainly in Europe, about the ?ladder of investment? imply that new entrants will eventually shift their business models away from service competition, developed mainly on the basis of local loop unbundling policies, relying increasingly on self-provided networks. However, regulators in many cases do not obtain sufficient data in order, particularly from new entrants, to monitor sufficiently the extent that their policies may impact on investment.

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