Regulation and the Evolution of the Global Telecommunications Industry pptx

Regulation and the Evolution of the Global
Telecommunications Industry
To my mother and the memory of my father who provided encouragement
and guidance in ways they never imagined. Also to my colleague and best
friend, Gary Lumsdem, who started his successful new business by taking
advantage of lucrative opportunities created by the new regulations of
telecommunications industry.
Anastassios Gentzoglanis
To my good colleagues at the Center for Communication, Media and
Information Technologies (CMI) at Aalborg University in Copenhagen
with whom I have cooperated for many years.
Anders Henten
Regulation and the
Evolution of the
Global
Telecommunications
Industry
Edited by
Anastassios Gentzoglanis
University of Sherbrooke, Canada
and
Anders Henten
Aalborg University, Denmark
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Anastassios Gentzoglanis and Anders Henten 2010
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.

Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2009940969
ISBN 978 1 84844 588 8
Printed and bound by MPG Books Group, UK
02
v
Contents
List of contributors vii
Foreword by Stephen Schmidt xvi
Preface by Erik Bohlin xvii
Evolving technologies, competition and the new role of regulation:
introduction and synopsis of the book 1
Anastassios Gentzoglanis and Anders Henten
PART I REGULATION VERSUS INVESTMENT:
THE BALANCE BETWEEN STATIC AND
DYNAMIC EFFICIENCIES AND THE MAIN

ISSUES OF REGULATORY POLICY
1 Investment in broadband technologies and the role of
regulation 21
Anastassios Gentzoglanis and Elias Aravantinos
2 Intermodal telecommunications competition: implications
for regulation of wholesale services 43
William E. Taylor
3 Access regulation versus infrastructure investment:
important lessons from Australia 63
Martyn Taylor
4 Behavioral economics and telecommunications policy 83
Patrick Xavier and Dimitri Ypsilanti
PART II TECHNOLOGY CONVERGENCE AND
THE FUTURE ROLE OF COMPETITION AND
REGULATION
5 The measure and regulation of competition in
telecommunications markets 109
Marcel Boyer
6 Preventing harm in telecommunications regulation: a new matrix
of principles and rules within the ex ante versus ex post debate 128
Kenneth Jull and Stephen Schmidt
vi Regulation and the evolution of the global telecoms industry
7 The transformation of telecoms industry structure:
an event study 149
Olaf Rieck
PART III ACCESS REGULATION AND PERFORMANCE
IN THE DEPLOYMENT OF NGNS:
INTERNATIONAL EXPERIENCES
8 From the pursuit of e ciency to the pursuit of competition in
New Zealand’s evolving telecommunications market 167

Bronwyn Howell
9 International regulatory comparisons: the evolution of
IP- based  ber 188
Scott Marcus and Dieter Elixmann
PART IV STRUCTURAL SEPARATION AND
REGULATION OF THE
TELECOMMUNICATIONS INDUSTRY
10 Di usion of broadband Internet and structural separation 211
Arata Kamino and Hidenori Fuke
11 Implementing functional separation in  xed
telecommunications markets: the UK experience 233
Peter Curwen and Jason Whalley
12 E ciency and sustainability of network neutrality proposals 253
Toshiya Jitsuzumi
PART V INTERDEPENDENT INNOVATIONS AND
REGULATORY POLICIES: MOBILE NETWORK
DEPLOYMENT AND MOBILE INTERNET
DEVELOPMENTS
13 Interdependent innovation in telecommunications: risk,
standardization and regulation 275
Bruno Basalisco, Andy Reid and Paul Richards
14 Next generation mobile networks deployment and regulation
in the European Union 301
Claudio Feijóo, Sergio Ramos and José- Luis Gómez- Barroso
15 Mobile Internet developments in Europe, East Asia and the US 317
Morten Falch, Anders Henten and Karsten Vandrup
Index 341
vii
Contributors
Elias Aravantinos has been Project Manager at the Columbia Institute

for Tele- Information on the Ultrabroadband project since 2004. He is
also the Managing Director of ExelixisNet which specializes in high-
technology strategies and new media products. His clients are carri-
ers, governments, academic institutes and media companies in North
America and Europe. From 2006 till 2008, Mr Aravantinos worked for
Queens College and the Metropolitan College of New York, teaching
several business and technology courses at graduate and undergradu-
ate level. He is completing his PhD thesis in Technology Management
at Stevens Institute of Technology, USA with a specialization in
Telecommunications. His research interests are new technology projec-
tions, strategies and business development, with a focus on 4G strategies.
He is a frequent speaker at industry and academic events, with numerous
presentations and publications. Mr Aravantinos holds a BSc degree in
Electrical Engineering and Computer Technology from the University of
Patras, Greece and an MBA in Information Technology from Oklahoma
City University, USA.
Bruno Basalisco is a PhD candidate in Economics at Imperial College
Business School, London. He conducts research in the  eld of industrial
economics, focusing on innovation, regulation, platforms and business
models in the information and communications and network industries in
general. His work has been presented at several international conferences
and workshops in the  eld of industrial organization, technology strategy
and telecommunications policy, and he has served as referee for leading
information and communication technology (ICT) economics and strat-
egy journals. Bruno holds an MSc in Science and Technology Policy from
SPRU, University of Sussex and an MA in Economics from Sant’Anna
School of Advanced Studies and University of Pisa. He has also brie y
worked for NERA Economic Consulting and for Ofcom.
Erik Bohlin is currently Head and Professor in Technology Assessment
in the Division of Technology and Society, Department of Technology

Management and Economics at Chalmers University of Technology. He
has published in a number of areas relating to the information society
– policy, strategy, and management. He is Chair of the International
viii Regulation and the evolution of the global telecoms industry
Telecommunications Society and Chief Editor of Telecommunications
Policy. He served as Special Advisor to IT and Media Commissioner
Viviane Reding of the European Commission in 2008–2009. He obtained
his graduate degree in Business Administration and Economics at
the Stockholm School of Economics (1987) and his PhD at Chalmers
University of Technology (1995).
Marcel Boyer holds a PhD in Economics from Carnegie- Mellon University.
He has taught economics at York University (1971–73), UQÀM (1973–74)
and at the University of Montreal (1974–2008). He held the Bell Canada
Chair in Industrial Economics in the Department of Economics at the
University of Montreal (2003–08) and the Jarislowsky–SSHRC–NSERC
(Social Sciences and Humanities Research Council; Natural Sciences
and Engineering Research Council of Canada) Chair in Technology and
International Competition at l’École Polytechnique de Montréal (1993–
2000). He is presently Emeritus Professor of Economics at the Université de
Montréal, Fellow of the C.D. Howe Institute, Centre interuniversitaire de
recherche en analyse des organisations (CIRANO) and Centre interuniversi-
taire de recherche en économie quantitative (CIREQ), Academic A liate of
The Analysis Group, Senior Economist at the Montreal Economic Institute,
member of the board of the Agency for Public–Private Partnerships of
Québec, member of the Industry Canada Advisory Committee on Business
Strategies and innovation, member of the Governance Committee of the
Sustainable Development and Socially Responsible Investment Chairs
(École polytechnique de Paris and Université de Toulouse). Marcel Boyer
has received numerous prizes for excellence in research. He is author or
co- author of over 250 scienti c articles and papers and public and private

reports. Marcel Boyer has acted as an expert economist on behalf of several
national and international corporations and government organizations, and
has testi ed as an expert witness before various organizations and tribunals.
Peter Curwen is Visiting Professor of Telecommunications Strategy at the
Strathclyde Business School, Glasgow and also researches and publishes
on a private basis. He was previously Professor of Business Economics at
She eld Hallam University. His primary research interests concerns the
manner in which a rapidly changing environment a ects the structure of
the mobile telecommunications industry and its strategic implications for
major companies in that sector. He has published three books on telecom-
munications, including Telecommunications Strategy: Cases, Theory and
Applications (Routledge, 2004) with Jason Whalley.
Dieter Elixmann is head of the Corporate Strategies research group
at Wissenschaftliches Institut fur Kommunikationsdienste (WIK), Bad
Contributors ix
Honnef, Germany. He has been with WIK since 1985. He is also head
of the Telecommunications Markets research group. His recent research
focuses on econometric estimation of production structures of Deutsche
Telekom, demand analysis in the telco sector, internationalization and
globalization in the telco sector, and multimedia business strategies.
Morten Falch is Associate Professor at the Center for Communication,
Media and Information Technologies (CMI) located at Copenhagen
Institute of Technology, Aalborg University, Denmark. He holds a
Bachelors degree in Mathematics, a Masters degree in Economics and
a PhD. Since 1988 his research has been specialized in socio- economic
issues related to information and communication technologies. This
includes economic analysis of applications and telecommunication net-
works and services (for example cost analysis of telecom networks),
e- government, regulation of the telecom sector (in particular regulation
of interconnection), information and communication technology (ICT)

and industry policy, the role of competition in innovation of new serv-
ices and spectrum management. He has participated in many European
Union (EU) funded research projects in the telematics area. He has also
conducted a large number of consultancies for national and international
organizations such as the International Telecommunication Union (ITU),
the United Nations Conference Trade and Development (UNCTAD), the
World Bank and the national telecom agencies in Denmark, Norway and
Sweden.
Claudio Feijóo is Professor at Universidad Politécnica de Madrid, Spain
where he researches on the future socio- economic impact of emerging
information society technologies. He recently returned from a highly
rewarding two years as a visiting researcher at the Institute for Prospective
Technological Studies of the Joint Research Centre of the European
Commission. Since 1993 he has been involved in telecommunications and
information society development from the academic, the practical imple-
mentation and the public administration perspectives.
Hidenori Fuke has been Professor of Info- Communications Industry at the
Faculty of Global Media Studies, Komazawa University in Tokyo, Japan
since 2007. He has done extensive research on the info- communications
industry and regulatory policy in the industry as a member of the board
of directors at InfoCom Research and Professor at Kansai University in
Osaka. He received his BA in Economics from Tokyo University, and M
Litt. from Glasgow University. He also received a PhD in International
Public Policy from Osaka University. His major areas of specialization
include the economic analysis of the telecommunications industry and
x Regulation and the evolution of the global telecoms industry
regulatory policy. He has written many papers and books in this area in
both Japanese and English.
Anastassios Gentzoglanis holds a PhD degree from McGill University,
Canada and is a full Professor of Economics and Finance at the University

of Sherbrooke. He teaches and conducts research in the area of regulatory
economics. He is frequently invited to teach and work on research projects
related to the economics of regulation and new technologies in Europe,
Asia, Central and Latin America and Africa. He has also received many
funded research grants from both domestic and international organiza-
tions, published in a number of high- quality scholarly journals and partici-
pated in many international conferences. In June 2008, Dr Gentzoglanis
organized and chaired the 17th Biennial conference of the International
Telecommunications Society (ITS) in Montreal. He is also director of the
Centre for the Study of Regulatory Economics and Finance (CEREF) and
he organizes courses for executives in the area of regulation of public utili-
ties for the Francophonie.
Toshiya Jitsuzumi is a Professor of Industrial Policy at the Faculty of
Economics, Kyushu University, Japan. He has earned an LLB from the
University of Tokyo, an MBA from New York University, and a DSc
from Waseda University, Japan. Prior to starting his academic career
in 2000, Professor Jitsuzumi had served for 15 years at the Ministry of
Post and Telecommunications (now Ministry of Internal A airs and
Communication), Japan. The research topics of his interest include public
economics and communication and Internet economics. During 2007–08, he
was a visiting scholar at the Columbia Institute for Tele- Information (CITI),
Columbia University, as an Abe Fellow sponsored by the Social Science
Research Council/Japan Foundation Center for Global Partnership. His
research work has appeared in various journals, including Telecommunications
Policy, Foresight and Socio- Economic Planning Sciences. He is a member of
several academic societies, including the International Telecommunications
Society and the Regional Science Association International.
José- Luis Gómez- Barroso is Associate Professor at the Universidad
Nacional de Educación a Distancia (UNED), Spain. He holds a PhD in
Economics, as well as a Masters in Telecommunication Engineering and

a Masters in Law. His teaching and research interests lie in the evolution
of the information society and electronic communications under the triple
perspective of technology, economy and regulation, Dr Gómez- Barroso
has contributed signi cantly in the  eld of telecommunications by author-
ing many papers in academic journals and international conferences on
the subject.
Contributors xi
Anders Henten is Associate Professor at the Center for Communication,
Media and Information technologies (CMI) at Aalborg University,
Denmark. He is a graduate in Communications and International
Development Studies from Roskilde University in Denmark and holds
a PhD from the Technical University of Denmark. His main areas of
research are service innovation and internationalization, regulation of
communications, standardization, and socio- economic implications of
information and communication technologies, including e- business and
business modeling. Anders Henten has worked professionally in the areas
of communications economy and policy for more than 20 years. He has
participated in numerous research projects  nanced by the European
Community, the Nordic Council of Ministers, Danish research councils
and ministries, and in consultancies,  nanced by the World Bank, the
United Nations Conference on Trade and Development (UNCTAD), the
International Telecommunication Union (ITU), Danish ministries, and
so on. He has published nationally and internationally – more than 200
academic publications in international journals, books, anthologies, con-
ference proceedings, and so on.
Bronwyn Howell is General Manager of the New Zealand Institute for the
Study of Competition and Regulation, and a faculty member of Victoria
Management School, Victoria University of Wellington, New Zealand.
She teaches and researches in the areas of institutional economics, the
information economy and regulation, with speci c interests in the devel-

opment, implementation and performance of institutions and policies
governing the operation of information technology and telecommunica-
tions markets.
Kenneth Jull practices at Baker & McKenzie LLP, Toronto o ce, in the
area of risk management strategies to promote regulatory and corpo-
rate compliance. Mr Jull is the co- author with Justice Todd Archibald
and Professor Kent Roach of Regulatory and Corporate Liability: From
Due Diligence to Risk Management. He is an Adjunct Professor at the
University of Toronto, Faculty of Law where he teaches ‘Financial
Crimes’. Mr Jull has an appointment to the Faculty of Graduate Studies at
Osgoode Hall Law School, where he is the Director of the part- time LLM
specializing in civil litigation and dispute resolution.
Arata Kamino has been an Executive Researcher of the global information
and communication technology (ICT) industry study group at InfoCom
Research, Inc. in Tokyo, Japan since 1995. He has been responsible for
comprehensive analysis of ICT industry using method of comparative
study between major overseas countries and Japan. His main interests
xii Regulation and the evolution of the global telecoms industry
cover policies, regulations, market structure and corporate strategies in
the  eld of domestic and global ICT. He received his BA in Economics
from Tokyo University. He has written many papers for books, academic
journals and magazines.
Scott Marcus is a Senior Consultant for WIK- Consult GmbH, Germany,
a research institute in economics and regulatory policy for network indus-
tries. Previously, he served as Senior Advisor for Internet Technology for
the US Federal Communication Commission (FCC). Prior to that, he
was the Chief Technology O cer (CTO) of Genuity, Inc. In 2004, Scott
was attached to the European Commission (DG INFSO – Directorate
General for information Society and Media) as a Transatlantic Fellow
of the German Marshall Fund of the United States. Scott is also a newly

appointed Fellow of GLOCOM (the Center for Global Communications,
a research institute of the International University of Japan), and a
Visiting Fellow of the University of Southern California’s Center for
Communication Law and Policy. He is co- editor for public policy and
regulation for IEEE Communications Magazine. He served on the board
of the American Registry of Internet Numbers (ARIN) from 2000 to 2002,
and on the Meetings and Conference Board of the Institute of Electrical
and Electronics Engineers (IEEE) Communications Society from 2001
to 2005, and as Chair of the IEEE Committee on Network Operations
and Management (CNOM). He is a Senior Member of the IEEE. He is
the author of numerous papers and of a book on data network design:
Designing Wide Area Networks and Internetworks: A Practical Guide
(Addison Wesley, 1999).
Sergio Ramos gained his PhD degree in Telecommunications Engineering
from the Universidad Politécnica de Madrid, and he holds an MBA
from the Stockholm School of Economics. He worked for the European
Commission as Resident Twinning Adviser of a European Commission
(EC) Twinning Project for the Public Utilities Commission of Latvia,
to design and monitor the transposition process of the European Union
(EU) framework into Latvian legislation. He is currently Deputy Director
at the Spanish Association of Telecommunication Network Operators
(REDTEL).
Andy Reid has the role of Chief Network Services Strategist at British
Telecom (BT). Prior to this position he has worked in technical as
well as product marketing roles in BT. His professional interests and
expertise cover telecommunications technologies, network architecture,
service pricing, and links to regulatory and competition law microeco-
nomic analysis. He made major contributions to the development of
Contributors xiii
the telecommunications transmission technology including SONET/SDH

(synchronous optical networking/synchronous digital hierarchy) and more
recently on Ethernet standards, and has co- authored two major textbooks
in this area as well as numerous papers for professional standards bodies
and technical forums.
Paul Richards is a Regulatory Economist and has worked for British
Telecom (BT) since 1997. Prior to this position he worked in a variety
of private and public sector roles in the areas of economic modeling and
regulatory analysis.
Olaf Rieck is an Assistant Professor at Nanyang Business School,
Singapore. His research focuses on telecommunications economics and
policy, as well as on corporate strategy for telecommunications service
providers. Dr Rieck studied Industrial Engineering and Management
(Universität Karlsruhe/Germany, University of Auckland/New Zealand)
and Economics (University of British Columbia/Canada) and holds a PhD
in Business Administration (University of British Columbia). Previous
to his academic career he worked for Mercedes- Benz AG on strategic
information technology (IT) projects in the areas of telecommunications
and business process re- engineering. Dr Rieck teaches an introduction to
IT, telecommunications industry management, and mobile commerce to
undergraduate students and MBAs. He has also held executive teaching
assignments with Korea Telecom and LG.
Stephen Schmidt is Chief Regulatory Legal Counsel at TELUS
Communications Company. His responsibilities include regulatory,
legal and policy submissions to the Canadian Radio- television and
Telecommunications Commission (CRTC), the Federal Court of Appeal,
the Supreme Court of Canada, the Competition Bureau and other govern-
ment bodies. Prior to joining TELUS, he worked at AT&T Canada and
ACC TelEnterprises, with a focus on regulatory and legal matters respec-
tively. Mr Schmidt holds a BA (with Distinction) from the University of
Toronto and an LLB from the University of Manitoba. He is on the board

of directors of the International Telecommunications Society and lives in
Ottawa, Canada.
Martyn Taylor is a Partner in the competition and market regulation team
of Gilbert & Tobin, based in Sydney. He specializes in telecommunica-
tions law, antitrust law and international economic law. Martyn has been
advising on telecoms law and regulation since 1995, principally within the
Asia- Paci c region. His clients have included some of the world’s largest
technology and telecoms multinationals. Martyn has multiple postgradu-
ate quali cations in law, corporate  nance and economics, including a
xiv Regulation and the evolution of the global telecoms industry
PhD. He has published extensively, including a book titled International
Competition Law (Cambridge University Press, 2006) and as a contribu-
tor to Merger Control Worldwide by Dabbah and Lasok (eds), Cambridge
University Press, 2008. He is currently the technology editor for the
Australian Business Law Review.
William E. Taylor is a Senior Vice- President at NERA Economic
Consulting, where he heads the Communications Practice and the Boston
o ce. He received a BA in Economics from Harvard, an MA in Statistics
and a PhD in Economics from Berkeley. He taught economics, sta-
tistics, and econometrics at Cornell, Louvain and MIT and published
research in economics, econometrics and telecommunications policy at
Bell Laboratories and Bellcore. At NERA, he has worked and pub-
lished extensively in telecommunications economics on such issues as
access charges, costs, regulatory reform, productivity, competition policy,
mergers, vertical integration, interconnection pricing and antitrust issues.
He has testi ed on telecommunications economics before numerous
domestic and foreign regulatory authorities, courts and legislative bodies.
Karsten Vandrup, Director at Litepoint Europe, is currently responsible
for Litepoint’s sites in Israel and Denmark. Prior to this position, Vandrup
was Vice- President of Engineering at Litepoint’s Headquarters in Silicon

Valley, California. Before joining Litepoint, Vandrup held several posi-
tions at Nokia including Senior Research Manager in the Nokia System
Research, Manager of Strategic Planning in the Nokia Research and
Technology Access (Espoo, Finland), Global R&D Cooperation Manager
in the Nokia Research and Education Policy Department at the Nokia
Head O ce (Copenhagen). As a part of the latter, Vandrup was a member
of the Career- Space Consortium. He started his career in Nokia as DSP
Design Engineer, later Engineering Manager, and holds an akademiin-
geniør degree in Telecommunication and Electronics from the Technical
University of Denmark, supplemented with studies at INSEAD, the
University of California, Los Angeles (UCLA) and the Swedish School of
Economics and Business Administration in Helsinki.
Jason Whalley is Reader in the Department of Management Science,
University of Strathclyde, Glasgow. His research interests include the
internationalization of mobile operators, as well as the development of
telecommunications policy in mountainous developing countries. In addi-
tion, his research also examines the di usion of broadband and the regula-
tory measures taken to encourage its uptake.
Patrick Xavier is Director of Info- Comm Strategies and Adjunct Professor
of Communications Economics, Centre for Communications Economics
Contributors xv
and Electronic Markets, Curtin University of Technology, Australia. He
has served as consultant to a wide range of national and international
agencies, including the Organisation for Economic Co- operation and
Development (OECD), World Bank, Asia- Paci c Economic Cooperation
(APEC) and International Telecommunication of Union (ITU).
Dimitri Ypsilanti is head of the Information, Communications and
Consumer Policy Division in the Directorate of Science, Technology and
Industry at the OECD. He has specialized in telecommunication policy
and regulation.

xvi
Foreword
TELUS is very proud to have been the corporate host, along with the
Université de Sherbrooke as the academic host, of the 17th Biennial
Conference of the International Telecommunications Society (ITS): The
Changing Structure of the Telecommunications Industry and the New
Role of Regulation, which took place in June 2008, in Montreal, Canada.
TELUS invited the ITS conference to Canada because TELUS believes in
fostering high- quality analysis of important public policy issues a ecting
telecommunications both in Canada and around the world.
More than 300 delegates from more than 40 countries came together for
four days in Montreal to share new ideas and approaches for dealing with
pressing issues in telecommunications, including technological change,
new sources of competition, new theoretical developments, and the ways
in which government policy can best respond to these issues.
This book  ows directly from the ITS conference and e ectively cap-
tures the character of the conference in microcosm. The 15 chapters
selected by Drs Gentzoglannis and Henten re ect the rich, international
character and professional diversity of ITS and its members. The present
volume contains contributions from the academic, private sector and
government communities, providing a crucial window into key contem-
porary debates in telecommunications. I am con dent that this volume
will inform and shape future debate, policy- making, business planning,
research and strategic thinking.
Stephen Schmidt
Chief Regulatory Legal Counsel
TELUS Communications
Ottawa, Canada
xvii
Preface

The International Telecommunications Society (ITS) convened its 17th
Biennial Conference in Montréal, 24–27 June 2008. The conference was
organized by the Université de Sherbrooke, on the initiative of Professor
Anastassios Gentzoglanis, Organizing Committee Chair. There was also a
main sponsor and corporate host – TELUS – represented by Dr Stephen
Schmidt, Organizing Committee Co- chair, and supported by Organizing
Committee Co- chair Stanford L. Levin, Southern Illinois University at
Edwardsville, and Program Chair Richard Schultz, McGill University.
Looking back, it was in 1997 that a major ITS conference took place in
North America. The industry and research have certainly moved a long
way, facing new technologies and regulatory challenges, but the critical
methods and policy analyses remain. The title of the conference aptly
re ected both the change and the continuity: ‘The Changing Structure of
the Telecommunications Industry and the New Role of Regulation’.
The conference was a signi cant success. The theme attracted a large
amount of submissions. In fact, it drew one of the largest pool of sub-
missions to an ITS conference ever, and the was one of the largest ITS
conferences ever from all over the world. Conference evaluations were
very positive after the event. The conference also brought to the fore new
research and policy agendas.
This book is based upon selected and edited conference papers. The
editors have been careful to select a wide range of chapters in order to
capture the convergence issue from a number of perspectives, and to
achieve a historical state of the art. The volume succeeds in providing a
multifaceted and rich view of both changing industry structure and for
new roles of regulation. The editors and the contributors are to be con-
gratulated for a timely book.
Erik Bohlin
ITS Chair
Professor, Chalmers University of Technology, Sweden

1
Evolving technologies, competition and
the new role of regulation: introduction
and synopsis of the book
Anastassios Gentzoglanis and Anders Henten
Regulation of the telecommunications industry has traditionally focused
on the supply side of the industry, chie y the retail segment of the market.
Since liberalization of the industry has begun, regulation has gradually
shifted to the wholesale segment of the market. The regulatory agencies
have intervened to regulate access and facilitate entry and, hopefully,
investment in infrastructure. This asymmetric regulation has had mixed
results. As an answer to that some regulatory agencies have abandoned
wholesale regulation (the case of the USA) and some others have shifted
from light- handed regulation to heavy- handed regulation with manda-
tory unbundling of the local loop (the case of Australia). Other regulatory
agencies have moved to a more gradual type of wholesale deregulation on
the grounds that competition in this segment of the market has not yet
fully developed, but as it grows the need for regulation is reduced (the case
of Europe and Canada).
Paradoxically, as competition increases in the retail segment of the
market, consumers are increasingly ‘impaired’ in their capacity to make
decisions in their best interest. The array of services and suppliers that
competition makes available increases consumer choice and with it the dif-
 culties for them to make rational decisions with respect to services, quality
and prices, and so on. If consumers are able to make rational decisions,
competition among new service suppliers will increase. But if consumers
are unable to make rational decisions because of too much choice or poor
quality of information or misinformation, competition is dampened and
the competitive process is jeopardized. In that context, regulation must

emphasize the demand aspects of the industry and consumer protection
should become a priority for the regulatory agencies.
Further, next generation mobile networks (NGMNs) depend heavily
on the existence of ubiquitous broadband (BB) connectivity, applica-
tions and content. Broadband deployment is uneven within and among
2 Regulation and the evolution of the global telecoms industry
countries. Without an adequate deployment of BB technologies the eco-
nomic growth of the countries is jeopardized. Apparently, regulation is
one important factor determining the pace of deployment of BB technolo-
gies. The regulatory model chosen may impact positively or negatively on
investment in BB infrastructure. Additionally, ubiquitous BB and mobile
applications create new needs for spectrum availability and spectrum
management becomes an important function of the regulatory agencies,
particularly at this time of rapid evolution of the mobile technologies. The
NGMNs require a new distinctive regulatory and policy framework which
will deal explicitly with the issues and opportunities of the next phase of
wireless technologies.
Regulation evolves and its evolution is the result and the impetus of
change of the telecommunications industry structure and performance.
As the industry becomes more mature and incumbents and new entrants
get more familiar with the rules of the game, they become able to develop
strategies which increase the value of the  rm. In a competitive context
telecommunications  rms will invest only if their investment achieves an
average return which is greater than the weighted average cost of capital
(WACC). Projects with positive net present values (adjusted for speci c
risks) are value accretive and therefore it is worth undertaking them. They
will bring more wealth to stakeholders through dividends and capital
gains. In a regulatory context the investment decisions, particularly for
projects of high risk (sunk investments in BB and NGMNs, for instance)
may not occur or may be ‘unreasonably’ delayed. Thus, under speci c reg-

ulatory frameworks, deployment of BB technologies may not be optimal,
NGMNs may not roll out adequately or optimally, consumers may be
‘impaired’ or harmed; and these are not necessarily the results the regula-
tory authorities have sought to achieve in the  rst place. Regulation thus
has a role in an evolving global telecommunications industry.
This was precisely the main theme of the International
Telecommunications Society (ITS) 17th Biennial Conference which was
held in Montreal from 24 to 28 June 2008. This book has been prepared
to highlight the main arguments and the richness of ideas about the new
issues which arise from the evolving structure of the global telecom-
munications industry and the role of regulation. The 15 papers from
the conference have been peer reviewed and they meet the stringent
criteria of the scienti c papers and those of Edward Elgar Publishing.
We are grateful to the publisher and particularly to Alan Sturner for
his meticulous work in the preparation of this volume. We also thank
our colleagues and authors of the 15 chapters of this volume for having
contributed high- quality chapters. As organizer of the 17th Biennial
ITS Conference, Dr Gentzoglanis thanks TELUS, and particularly
Introduction and synopsis 3
Stephen Schmidt, for contributing  nancially to the publication of this
book and its contribution,  nancial and in kind, in being a corporate
host for the very successful ITS Conference. Gratitude is also extended
to the Université de Sherbrooke, O ce of Research and the Faculty of
Business Administration for their  nancial contribution and support. Dr
Gentzoglanis thanks the SSHRC (the Social Sciences and Humanities
Research Council of Canada) for its generous contribution to the organi-
zation of the ITS Conference and the publication of this book. He also
thanks Emmanuella Gentzoglanis and Andrianiaina Rajaobelina for
their help and comments and suggestions. This book could not exist
without our many devoted manuscript peer reviewers. Sincere thanks to

all the reviewers who dedicated their time and shared their knowledge
with the authors and the editors of this book.
The  rst chapter by Anastassios Gentzoglanis and Elias Aravantinos
provides an extensive review of the literature on the role of regulation in
the deployment of broadband technologies. The chapter starts out with
a general introduction to the role of regulation in telecommunications
markets and, furthermore, as an input discusses the relationship between
competition and investment. It is emphasized that this depends on the
degree of competition and the development of the market. An inverted
U- shaped curve is suggested as describing the implications of competition
on investment. More speci cally, the chapter examines whether and how
broadband development can be promoted by means of regulation. Two
di erent types of broadband competition are discussed, service- based
competition (SBC) and facilities- based competition (FBC). FBC is gen-
erally seen to be the most desirable situation or goal as FBC provides a
dynamic e ciency while SBC is seen to lead to static e ciency.
The chapter gives focus to the ongoing discussion as to whether the
static e ciency associated with SBC can lead to the dynamic e ciency
related to FBC. This is the proposition advanced by the theory of the
ladder of investment (LoI). According to this theory, new operators to the
market will not generally begin with investing in infrastructure but will be
more inclined to enter the market using a service- based model. Eventually,
such new operators will start investing in infrastructure when they acquire
a better understanding of the market conditions. Regulation can facilitate
this process by setting the right entry conditions, for example, by start-
ing with a relatively low access fee which is later on increased as the new
entrants settle in the market.
The chapter examines the theoretical aspects of the ladder of investment
theory and also refers to papers presenting empirically based analyses of
the tenability of the theory. Moreover, the chapter introduces the issue

of intermodal or interplatform competition. Even though this issue is not
4 Regulation and the evolution of the global telecoms industry
absent per se from the LoI theory, nonetheless, when debating LoI, there
is a tendency to con ne it within a single type of access network. The
chapter by Gentzoglanis and Aravantinos contributes to the debate by
synthesizing the main arguments pertaining to the LoI theory. In addition,
the chapter underlines the fact that BB development in di erent countries
is not the same and this is attributed to the di erences in the countries’
regulatory policies and the type of their initial technological infrastruc-
ture. It should be expected therefore that the implications of a LoI policy
will be di erent for countries with basically just one type of infrastructure
(PSTN – public switched telephone network) and countries with compet-
ing infrastructures (for example, PSTN and cable).
On the basis of the theoretical propositions and the empirical analyses
referred to, the chapter concludes that the actual LoI policies implemented
so far have not been successful, but one cannot dismiss the possibility
that a LoI policy can work. This presupposes, however, that the timing is
right and the policy is  ne- tuned precisely with respect to the types of new
entrants. Regulators should then ask: Are they  rst- movers or second-
movers? But this sets very high requirements on regulation.
In the second chapter, William Taylor discusses the nature of intermo-
dal competition and its implications for regulation of wholesale services in
the context of the US, but given the ubiquity of intermodal technologies,
the conclusions of his analysis can  nd a wider application. Taylor notes
that demand for wholesale services is a derived demand, in the sense that
wholesale services can be considered ‘essential’ in the provision of retail
services in the downstream market. Competition among retail service
providers may curtail retail prices but there is a likelihood of anticom-
petitive conduct when the incumbent local exchange carrier (ILEC) is not
regulated in the form of mandatory unbundling and provision of essential

wholesale services at regulated prices.
When competition is  erce among dependent wireline competitive local
exchange carriers (CLECs), their returns in the retail market cannot be
higher than normal and therefore the ILEC monopolist of wholesale
wireline services cannot behave anticompetitively and charge high prices
for its essential wholesale services. Since it cannot exercise its market
power at the wholesale level, its pro ts will also be normal. This may
have some undesirable e ects on investment in infrastructure. The man-
datory unbundling of ILEC facilities at regulated rates would reduce the
incentive of retail wireline competitors to invest in their own network
infrastructures and compete on an end- to- end basis. At the same time, the
requirement that ILEC facilities be shared with competitors reduces the
ILEC’s incentives to introduce and roll out that infrastructure, particu-
larly for services associated with investment that will, eventually, be sunk.
Introduction and synopsis 5
Further, Taylor casts doubts about the necessity of price regulation at
multiple stages of production (wholesale and retail). Using examples from
the US, he demonstrates that regulation at the wholesale and retail levels
becomes a source of unintended consequences in competitive markets.
Thus, where intermodal competition is present the ILEC’s capacity to
exercise its market power is nil and therefore customers cannot be harmed.
Accordingly, ex ante economic regulation cannot lead to an increase in
social welfare and there are not any e ciency arguments that can justify
the presence of economic regulation at the wholesale level. In the absence
of an ex ante wholesale regulation, customers can be protected from
competition authorities which will respond ex post to speci c complaints
of anticompetitive behavior on behalf of ILEC. Thus, where intermodal
competition exists, ex post regulation is a better vehicle to protect custom-
ers than ex ante regulation.
In the third chapter Martyn Taylor delves into the question of how to

strike a balance between competition, investment in infrastructure and reg-
ulation. Using the conventional  nancial framework for project appraisal,
Taylor argues that the returns that a  rm expects to get from investment in
infrastructure are constrained by market conditions (consumers’ willing-
ness to pay), the presence of substitutable services (wireless broadband,
for instance) and regulatory policies. These factors increase the perceived
risk of the investment in next generation networks (NGNs) and the latter
will not materialize unless a  rm has reasonable certainty that it will earn
a return that exceeds its cost of capital over the project’s life.
Taylor argues that well- intended regulation can have unintended adverse
e ects, chie y by providing disincentives to investment due to an increase
in perceived risks particularly when regulation is asymmetric. Network
unbundling and cost- based access regulation are two cases in point. While
they contribute to allocative (static) e ciency by increasing the level of
competition to which incumbent network owners are subject, they may
do so at the expense of long- term investment incentives. The total element
long- run incremental cost (TELRIC) approach has been used in the US
and its variant – total service long- run incremental cost (TSLRIC) – in
Australia as a mechanism to regulate prices based on the incremental
costs faced by an e cient cost- minimizing  rm with an optimally con-
 gured network that uses the best available current technology. Under
the TELRIC approach, any investment in network infrastructure would
simply earn enough to cover the project’s weighted average cost of capital
(WACC), bringing thereby the net present value (NPV) of the project
near zero. The  rm would not have an incentive to invest in infrastructure
and the desirable long- term e ects of dynamic competition are sacri ced.
This was the case with Australia which has applied excessive regulation
6 Regulation and the evolution of the global telecoms industry
using the TSLRIC approach. The application of TSLRIC pricing by the
Australian Competition and Consumer Commission (ACCC) has deterred

investment in infrastructure and investment  ows have been distorted
away from regulated (and potentially regulated) services towards unregu-
lated services and infrastructure. The negative e ects of excessive regula-
tion are illustrated by the example of failed negotiations between Telstra
(Australia’s incumbent telecommunications carrier) and the Australian
government when the former was seeking exceptions from the current
regulation in order to implement  ber to the node (FTTN) upgrade
investments. Telstra’s withdrawal forced the government to intervene and
proceed with the investment in partnerships with the private sector. Taylor
suggests that policies such as access holidays and public–private partner-
ships (PPPs) may be some interesting techniques to provide incentives to
 rms to invest in NGN infrastructure.
Patrick Xavier and Dimitri Ypsilanti’s chapter (Chapter 4) examines the
demand side of the telecommunications industry. Since liberalization, the
number of new entrants in telecommunications markets has increased con-
siderably and service competition has grown signi cantly. In this context,
Xavier and Ypsilanti believe that the consumers’ rational decision- making
mechanism is seriously impaired amidst the plethora of services and pack-
ages o ered by the telecommunications  rms. This contrasts with the
neoclassical view of consumer behavior according to which consumers
are able to make rational decisions and choose, all the time, the goods
and services which maximize their utility. In reality, consumers’ behavior
departs signi cantly from the traditional rational behavior assumed by
the conventional neoclassical economic theory. By using the behavioral
approach to consumer behavior and statistical examples, the authors dem-
onstrate that consumers choose telecommunications services for a number
of reasons which may not be characterized as a ‘rational’ behavior in the
sense of classical theory. For instance, consumers are discouraged from
switching to a di erent service provider because of the perceived or real
high switching costs (lengthy and cumbersome switching procedures; early

exit charges; confusing products and non- transparent pricing; technical
incompatibility of equipment; long- term deals that lock consumers into
lengthy relationships with their providers).
The barriers to switching service providers can also have an impact on
the supply side of the industry. New entrants could be deterred from enter-
ing the market, fearing that they will be unable to persuade customers to
switch from their existing provider. ‘This could diminish contestability
and the e ectiveness of competition and limit the bene ts that consumers
would otherwise derive from it’, say Xavier and Ypsilanti. The statistics
from various countries (the UK, Portugal, Australia and the US) and