Essais d'économie des télécommunications

I am extremely grateful to my parents, Carmen Lucy and Javier, to my little brother JV, and to my family and friends in Bolivia for believing in me and for their support from the distance. I would like to thank the many people who have taught me mathematics back home, a warm thought goes to Hans Mu¨ller and don Roberto Zegarra, a first source of inspiration and inclination for the academic path.

This thesis contributes to three topics in the regulatory economics of telecommunications. The first chapter explores the debate of network neutrality regulation. It studies the consequences of a regulation when a "must have" content provider is willing to enter in joint investment agreements with Internet service providers. The second chapter investigates investment on next generation access networks in a regulated environment. It considers a framework where returns on investment are uncertain. It illustrates how access contracts with commitment clauses can be more efficient than plain usage-based access charges. The third chapter analyzes investment when technological progress is endogenous. It studies dynamic process innovation in market where n firms can reinvest present profits to reduce future costs. It develops a differential game to capture dynamic effects and describes the role of imperfect competition for technological progress.

The network neutrality chapter considers a scenario where Internet access providers are able to negotiate joint investment contracts with a valuable Internet content provider in order to enhance the quality of service and increase industry profits. It builds a model that studies the effect of a net neutrality regulation that would impede joint investments. The analysis shows that an unregulated regime results in higher quality investments, but it also allows access providers to degrade content quality compared to the net neutrality quality level. This might encourage content providers with low bargaining power to enter into exclusive deals as a way of improving their bargaining position instead of choosing a global quality increase. In spite of the welfare loss with exclusivity

Investment into next generation access networks is characterized by high uncertainties. The second chapter points out that this must be taken into account by regulatory authorities that aim to promote competition without hindering investment incentives. As mandated access to new infrastructures asymmetrically allocates risk on leading investors, mandated access creates a second-mover advantage that can discourage infrastructure roll-out. This chapter builds a model to show that (i) richer forms of access contracts encompassing commitment clauses between firms can overcome the investment hold up and (ii) they can be more efficient than plain wholesale linear prices in adverse market configurations as they induce a more symmetric allocation of risk.

The third chapter investigates dynamic process innovation in a product differentiated market where n firms can reinvest present profits to reduce future costs. The main focus is set on the market performance when the number competing firms is determined by a social planner. The main contribution consists in developing a differential game to corroborate the central role of imperfect competition on optimal investment highlighted by the industrial organization literature. It is found that increasing the number of firms reduces process innovation, whereas raising the degree of product substitutability increases it. The dynamic approach allows for a clear distinction between the positive effects of increasing the number of firms on static welfare versus the dynamic efficiency loss due to reduced process innovation. It further characterizes the optimal market structure.

From its inception and for many years, a state-owned or private monopoly provided telecommunications services. The existence of large fixed cost in the industry and the economic impossibility to replicate several infrastructure segments needed to provide telecommunications services justified the monopolistic market structure. The "natural monopoly" was regulated according to rate-of-return schemes where the prices for its services were adjusted so it was permitted to keep all earnings it generated, provided the return on capital was sufficiently close to a specified rate of return target. This scheme proved to sacrifice economic efficiency in two aspects: First, the monopolist had little incentives to reduce its costs.

Incentive regulation was then progressively adopted for the industry. One of the most common incentive regulations schemes consists in determining a price cap, that is an average price level, for a basket of services. To the extend that price caps resolve the efficiency shortfalls of rate-of-return regulation, they manifested anticipated limitations. Regulator's imperfect information about the monopoly's actual costs raises concerns in terms of regulator's credibility. High price caps are difficult to sustain from a political point of view and negative revenue balances forces an increase of price caps.