The Impact of EU Regulation in Network Industries

Open Access

Abstract

Within the European Union (EU), economic regulation is often used as a promotion mechanism to achieve specific objectives. In the telecommunications and the energy sectors this is observable through those regulations that promote the participation of new agents and/or new technologies Access regulation has been implemented in the EU to promote the entrance of new agents in the telecommunications sector. With the aim of stimulating competition and achieving its desired effects in markets and among consumers, new entrants have been provided with access to incumbents fixed-line infrastructure at the wholesale level. Similarly, as part of the EU 2020 energy strategy, the Climate and Energy Package undertook to implement the "20-20-20" targets. Among these, arguably the most challenging is raising up to 20% the share of EU energy consumption produced from renewable resources. Member States have embraced this target by promoting the production of electricity from renewable energy sources. Within the telecommunications sector, one of the markets affected by changes in the European regulatory framework is that of the broadband service. The rationale behind access regulation is that entrants be allowed initially to provide a service that requires minimum direct investment while relying on the incumbents existing network; however, subsequently, entrants are expected to increase their investments as they develop their own infrastructure in a process captured by the "ladder of investment" theory . This EU regulation has clear implications for the firms investment decisions and, as such, for aggregate infrastructure investment at the country level in the telecommunications sector. From a firm level point of view, in the context of the access regulation implemented in the EU, new market competitors are able to provide broadband access for customers by using the incumbents infrastructure, the prices for which are regulated. As such, firm performance is, in part, dependent on regulatory decisions, while the implementation of ...