Broadband Network Evolution and Path Dependency

Abstract

If market power regulation is necessary from a network economic point of view due to the absence of active or potential competition, the principle of minimal regulation should be applied. Thus, parameters of investment decisions should be left to market participants. Unfortunately, so far no lessons for the regulation of the telecommunications sector were drawn from the disincentive effects of the “ladder of investment approach”. On the contrary, regulators now not only intend to create investment incentives for new entrants; at the same time they also attempt to create incentives for incumbents to make specific investments in broadband networks. The purpose of this paper is to show how regulatory failures in the context of broadband network evolution can be overcome. Path dependency is revealed to be a creative process driven by entrepreneurial decision making. Market power regulation designed to foster technology policy issues (e.g. increasing investment incentives) would disturb this process and, from a network economic point of view, reflect a misinterpretation of the regulatory mandate.