Can two-part tariffs promote efficient investment on next generation networks?

We analyze if two-part access tariffs solve the dynamic consistency problem of the regulation of next generation networks We model the industry as a duopoly. where a vertically integrated incumbent and a downstream entrant, that requires access to the incumbent's network, compete on Hotelling's line. The incumbent can invest in the deployment of a next generation network that improves the quality of the retail services We have three main results First, we show that if the regulator can commit to a policy, a regulatory moratorium may emerge as socially optimal Second, we show that if the regulator cannot commit to a policy, it can induce investment only when the investment cost is low Third. we show that in this case, two-part tariffs involve very large payments from the entrant to the incumbent (C) 2009 Elsevier B.V. All rights reserved