The impact of different fibre access network technologies on cost, competition and welfare

Using a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model with wholesale access regulation this article evaluates the choice among different Fibre-to-the-Home (FTTH) architectures. The cost modellin...

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Bibliographic Details
Published in:Telecommunications policy 2012-03, Vol.36 (2), p.96-112
Main Authors: Hoernig, Steffen, Jay, Stephan, Neumann, Karl-Heinz, Peitz, Martin, Plückebaum, Thomas, Vogelsang, Ingo
Format: Article
Language:English
Subjects:
Bitstream access
Competition
Cost
Cost analysis
Cost engineering
Cost modelling
Electronic commerce
Engineering
Fiber optic networks
FTTH
Game theory
Nash equilibrium
Network industries
NGA
Oligopolies
Oligopoly
Prices
Regulation
Social welfare
Studies
Technology
Telecommunications policy
Unbundling
Welfare analysis
Welfare economics
Wholesale prices
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Summary:Using a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model with wholesale access regulation this article evaluates the choice among different Fibre-to-the-Home (FTTH) architectures. The cost modelling relies upon an engineering bottom-up approach that feeds into a competition model. For addressing competition the pyramid model was chosen, which is an extension of the Hotelling model to multiple firms/services. The paper solves for price setting Nash equilibria between an incumbent, wholesale-access-based entrants and cable as an additional fully integrated network competitor. Welfare tradeoffs are highlighted with respect to cost differences and QoS differences between the various FTTH architectures and between the modes of regulation. According to the analysis architectures that can be unbundled (and that allow for greater speeds) outperform, from a social welfare perspective, architectures that (realistically) allow only for bitstream access. ► We evaluate the operators' choice among different FTTH architectures. ► We solve Nash equilibria for an incumbent, wholesale-based entrants and cable. ► We assess welfare tradeoffs with respect to cost and QoS differences. ► Architectures that can be unbundled are superior from a social welfare perspective.
ISSN:0308-5961
1879-3258
DOI:10.1016/j.telpol.2011.12.003