Competition in telecommunications and the internet services: A dynamic perspective

The focus of this paper is on those elements of the Internet periphery and Internet service provision which are strongly based on telecommunications, in particular Internet access and Internet backbone. Access to the Internet requires a connection between the Internet user and the interface to the Internet service provider (ISP). Several access technologies exist: copper, fiber optics, two-way cable TV infrastructure (CATV network), powerline communication and radio in the loop. One may differentiate between narrowband and broadband Internet access. From a rather short run perspective the local loops of the established carriers are still - at least to some extent - monopolistic bottlenecks, with a consequent need for sector specific regulations (price cap, accounting separation, discriminatory free entry). However, neither from the (short run) perspective of narrowband Internet access nor from the (longer run) perspective of broadband Internet access does the recent introduction of line sharing regulation by the FCC as well as the European Parliament seem to be justified. Transit and peering arrangements among Internet backbone providers (IBPs) are not subject to sector-specific regulations. The agreements that cover interconnection between IBPs are characterized by private negotiations and are subject to non-disclosure rules. From the economic theory of regulation it follows that there is indeed no need for ex ante regulation due to the absence of network specific market power. The input market of communications bandwidth is competitive and each IBP can develop its own logistic concept to optimize its own backbone and set of transit and peering arrangements.