The Impact of Different Fibre Access Network Technologies on Cost, Competition and Welfare

We propose a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model subject to wholesale access regulation. It is based on Hoernig et al. (2010), 1 which examines the cost differentials and competitive outcomes for different fibre-to-the-home (FTTH) technologies. Its aim is to shed some light on the impact various technology and regulatory choices might be expected to have on prices, market entry, penetration and market shares over time. Understanding these issues should inform policymakers about particular technologies and provide guidance to the dynamic consequences of regulatory choices. The high capital costs and the long asset life of fibre mean that the technology choices made today will dictate the forms of competition and regulation that develop in these markets for years to come.We have developed two partly interlinked modeling approaches to analyze the impact of different architectures and wholesale scenarios on investment, cost, profitability, reach, competition, market shares, pricing and welfare. We have used a steady state cost model that feeds cost functions into a strategic competition model. Figure 1 shows the relation between the models and their primary outputs (grey)