Role of Access Charges in the Migration from Copper to FTTH

Abstract

We consider a horizontally and vertically differentiated duopoly model in order to analyse both intra- and inter-platform competition in a fully covered broadband access market (copper-copper, copper-FTTH and TTH-FTTH competitions). The model is purely static and does not address dynamic efficiency issues. It shows that the copper access charge plays a significant role in the migration from copper to FTTH and in FTTH investment incentives provided that consumers are segmented according to the access network technologies. In FTTH-infrastructure-based competition, only one of the two operators has incentives to invest in FTTH in less dense areas. Rival’s investment incentives react positively to the access charge level. However, the incumbent’s investment incentives are far less sensitive to the access charge for the reason that the gain from FTTH advantage is negatively impacted by the revenue loss in the wholesale market. The more competitive the broadband market is, the higher an access charge is required in order to enhance the rival’s FTTH coverage. A regulation of copper access charge above its cost level leads to a higher level of nationwide FTTH coverage and social welfare.

Keywords: duopoly market, competition, FTTH, investment incentives

JEL Classification: L51, L96