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Abstract: Mandatory Unbundling and Irreversible Investment in Telecom Networks
Abstract
Mandatory Unbundling and Irreversible Investment in Telecom Networks
The Review of Network Economics
Vol. 6, Issue 3 - September 2007, pp 274 - 298
Author
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Robert S. Pindyck
Sloan School of Management, Massachusetts Institute of Technology
E-mail: [email protected] |
Abstract
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This paper addresses the investment impact of network sharing mandated by the 1996 Telecommunications Act. Such investments involve sunk costs and so are irreversible. Regulators allow entrants to utilize such facilities at prices reflecting the cost of building a new, efficient, large-scale network. Such sharing opportunities are extensive, covering virtually all network services, and extremely flexible, as entrants can rent facilities in small increments for short duration. Because entrants do not bear the sunk costs, there is an asymmetric allocation of risk and return not properly accounted for in the pricing of network services. This creates a significant investment disincentive.
Keywords: Telecommunications, Irreversible Investment, Sunk Cost, Risk
JEL Codes: L96, L11
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