Wednesday, 2 April 2008

Monopoly of fibre access network?

This article from the National Business Review covers a recent idea put forward by the New Zealand Institute with regard to national fibre access network. The article says,
Independent think tank the New Zealand Institute is proposing the creation of a price-regulated monopoly investor in a national fibre access network, to speed up the roll out of broadband.
Its not clear to me how a state guaranteed monopoly would speed up anything. After all as Sir John Hicks put it, the best form of monopoly is a "quiet life" and this doesn't seem compatible with high levels of innovation.

The article goes on to say
Fibre Co would own the passive infrastructure and grant equal and open access to the fibre access network to service providers and others at a regulated price.
The price for such access is a big issue. The form of "price regulation" to be used is important. All forms of price regulation have problems in providing the correct incentives to firms especially in rapidly changing and dynamic markets where innovation is important.There are no obvious forms of regulation that provides the correct incentives to firms as far as entry into the market is concerned and the efficient use of the resource. Just think of the problems with the Baumol-Willig rule from a few years back.

The article ends by noting
For now, this country's fibre future remained reliant on investment decisions taken by Telecom, which faced weak incentives to invest significantly in a fibre access network, the institute said.
And why would the incentives of a state guaranteed monopoly be any better. Competition gives the best incentives, especially in rapidly changing, innovative markets.

(HT: Not PC)


Crampton said...

A national regulated monopoly fibre network can be second best efficient where government cannot precommit against expropriating private investment in infrastructure. How long after a private fibre company would find itself required to share access at regulated rates anyway? Threat of that is what keeps there from being any real private investment.

When you're in the situation where the government can't commit against effectively stealing the immobile factor, sometimes government has to supply the immobile factor or else nobody supplies it.

Paul Walker said...

Would a better response be to make it as costly as possible for governments to expropriate private investment. Something along the lines of the Regulatory Responsibility Bill, for example, to increase the cost to government of such action. It wouldn't be perfect but making so that the government had to announce what they wanted to do and why and how and when along with forcing them to compensation would increase the political cost of expropriation.