New Competition in Telecommunications Markets: Regulatory Pricing Principles1

Launching and stimulating competition in telecommunications markets is an important policy goal. It contains two elements: to encourage entry and to make competition e¤ective such that consumers bene…t. The …rst one requires that entrants can make pro…ts after investing in infrastructure so that they have an incentive to invest. The second one requires prices to be su¢ciently low so that consumers enjoy higher net utilities. At a …rst glance, these two element seem di¢cult to achieve at the same time. In this paper, we consider price regulation in the retail and wholesale market and answer to what extent such regulatory policy can stimulate competition. Our main …nding is that, in the short run, asymmetric access price regulation is an e¤ective instrument to make the entrant and consumers better o¤.