Reducing Uncertainty in Price Regulation for Fibre-Based, Open-Access Platforms

In many jurisdictions, regulation of telecommunications operators has been based on analysis of the forward-looking costs over the long run of an efficient operator. This regulatory approach, which focusses on the forward-looking replacement cost of an operators network, was viewed as assisting the achievement of a number objectives including efficient decisions by incumbents regarding technology choices and by potential competitors regarding bypass of the incumbent's network. One acronym for this regulatory methodology is “TSLRIC” (Total Services Long Run Incremental Cost). Dissatisfaction with the practicalities, including a conclusion that the TSLRIC methodology involves arbitrary decisions rather than being predictable, has lead a growing number of jurisdictions to change their telecommunication regulatory approach to an alternative approach focussed on historical costs which is often described as a Build Blocks Modelling (BBM) methodology. This approach is viewed as assisting the objective of combining the provision of incentives for the regulated entity to invest together with the objective of ensuring that the profits of monopoly providers are limited to protect end-users from exploitation.The UK and Australia have already changed the methodology of fixed-line telecommunications regulation to the BBM methodology. In New Zealand's case, the government has announced it intends to make this change and that it will do so by largely copying the existing BBM regulatory methodology as it applies electricity lines and gas pipeline businesses. This paper analyses the incentives provided by such a BBM regulatory methodology