Competition enhancing regulation & diffusion of innovation: the case of broadband networks

Transcription

1 Competition enhancing regulation & diffusion of innovation: the case of broadband networks Harald Gruber (European Investment Bank, Luxembourg) Pantelis Koutroumpis (Imperial College London, UK) Network Investment in Europe: Regulation, Pricing and Financing. Florence School of Regulation. European University Institute Florrence, 1 June 2012

2 Background Legacy Infrastructure and state Monopolies have been challenged globally during the last 20 years Liberalization & Sharing mandates introduced Two main approaches were followed: o Vertical separation (less demanding for regulators, potential loss of coordination) and o Horizontal separation - Competitive Access (costly & demanding for regulators, less intrusive for ownership, fair & equal access to the incumbents resources) How does regulation affect adoption? What is the optimal intervention in different environments that maximizes participation, innovation and expansion?

3 Global Adoption and Regulation Diverse adoption paths in different regions Adoption rates manifest the digital divide and the variation of regulatory interventions Western Europe & USA/Canada have reached 30% broadband penetration (2011) Retail is the preferred intervention in USA/Canada and Full LLU in Europe (Western and Eastern)

4 We perform a test on the immediate pre- and post- intervention effects. Immediate effect on adoption from the Full LLU in a global sample. The effects of Full LLU dissipate after 4-5 years Gradual increase from the Retail LLU with a much more subtle decline afterwards Surprising +13% (+8% if not applied) population adoption in 4.5 years Full LLU for the average country % Population change after Full & Retail LLU

5 The technology diffusion model Classic logistic (s-shaped curve) adoption theory (Geroski, 2000; Gruber & Verboven, 2001). Log-linear version allows for all checks and controls Concentration index of inter-firm competition: Concentration index of inter-platform competition: HH technology = å 9 i=1 T i æ ö è ç TCø 2 Concentration index of intra-dsl competition: HH DSL = å n i=1 T i æ ö è ç TC ø 2 Concentration index of intra-cable competition: HH Cable = å n i=1 T i æ ö è ç TC ø 2

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7 Broadband Adoption: Full & Retail Unbundling Full unbundling has a positive effect on adoption but not longlasting. Retail Unbundling has a more sustainable effect though smaller. This result is partly attributed to the different adoption phases the countries in sample are. Inter-firm competition is critical and intertechnology competition deters adoption Variables Sign/Significance Population GDPC +++ Full Unbundling ++ Retail Unbundling +++ Full_Y0 +++ Full_Y1 +++ Full_Y2 +++ Full_Y3 +++ Full_Y4 Ret_Y0 Ret_Y1 +++ Ret_Y2 +++ Ret_Y3 +++ Ret_Y4 +++ HHI Competition -- HHI Technology +++

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9 Intra Technology Competition Competition within platforms is often fierce and more intense than across platforms In the sample interfirm competition is the main driver of adoption and intra- DSL competition follows Intra-Cable competition is insignificant and intertechnology is positive again (an impediment to adoption) Variables Population GDPC +++ Full Unbundling ++ Retail Unbundling +++ Full_Y0 +++ Full_Y1 +++ Full_Y2 +++ Full_Y3 +++ Full_Y4 Ret_Y0 Ret_Y1 +++ Ret_Y2 +++ Ret_Y3 +++ Ret_Y4 +++ HHI Competition -- (-0.120) HHI Technology +++ (0.087) HHI DSL -- (-0.026) HHI Cable Sign/Significance

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11 Income Effects Income is a critical enable of adoption with increasing returns Base case the Low Income Countries We perform additional controls with lagged GDPC and income values to prevent the reverse links with Broadband penetration All results confirm this relationship Variables Sign/Significance Population --- GDPC +++ Income High +++ (1.110) Income Medium +++ (1.084) Income Medium-Low +++ (0.559) Full Unbundling ++ Retail Unbundling +++ Full_Y0 +++ Full_Y1 +++ Full_Y2 +++ Full_Y3 +++ Full_Y4 Ret_Y0 Ret_Y1 +++ Ret_Y2 +++ Ret_Y3 +++ Ret_Y4 +++ HHI Competition -- HHI Technology +++

12 Robustness Checks Additionally we perform a series of robustness checks to control for our findings 1. Is the model well specified? We simplify our approach and use simple linear adoption model regressing Delta Penetration and Subscribers (on annual increments) with all the variables of our sample. Results are similar if not identical. 2. Is income endogenous to Broadband Penetration? We regress lagged dependents of income quartiles (1 and 2 year) and GDPC (1 and 2 years) and find very similar results 3. Does Policy intervention timing not the interventions per se- affect Competition metrics (HHI indexes)? A two-staged approach is further explored where Full and Retail binaries are regressed against HHIs (1 st stage) and the estimated competition metrics are fed into the logistic model (2 nd stage). Initial results persist again.

13 Conclusion Diffusion affects growth & is affected by regulation Critical enablers of diffusion: Income Inter-Firm & Intra-Platform competition Mandated competitive access (Full & Retail) The findings vindicate to some extent regulatory strategies aimed at mandating access for furthering diffusion of broadband This could also give some hints for NGN regulation, where there are different priorities at international level (e.g. open access in Europe, no ex ante regulation in the US)