New Competition in Telecommunications Markets: Regulatory Pricing Principles

Launching and stimulating competition in telecommunications markets is an important policy goal. It contains two elements: to encourage entry and to make competition effective such that consumers benefit. The first one requires that entrants can make profits after investing in infrastructure so that they have an incentive to invest. The second one requires prices to be sufficiently low so that consumers enjoy higher net utilities. At a first glance, these two elements seem difficult to achieve at the same time. In this paper, we consider price regulation in the retail and wholesale market and answer to what extent such regulatory policy can stimulate competition. Our main finding is that, in the short run, asymmetric access price regulation is an effective instrument to make the entrant and consumers better off.