Investments in next generation access infrastructures under regulatory uncertainty

• We study the uncertainty about future access prices once a NGA network has been made.
• Such uncertainty refers to the potential inclusion of a markup into the access price.
• We find the privately and socially optimal investments under regulatory uncertainty.
• The socially optimal investments are undertaken for a given probability of inclusion.
• Demand and cost parameters concerning NGA investments affect the optimal probability.

This article studies the impact of regulatory uncertainty on an incumbent’s incentives to undertake the socially optimal investments in NGA networks. Thus, a regulatory non-commitment setting in which the regulator sets the access price after the deployment of the NGA network is used. In particular, it is assumed that the regulator sets the access price at the marginal cost of providing the access with some probability and gives an access markup, which equals the average cost of the investments, with the complementary probability. It is found that when the slope of the marginal investment cost function is not particularly steep in relation to the impact of investments on demand, the incumbent underinvests compared to the socially optimal investment level. On the contrary, in a more realistic case when the impact of investments on demand is low in relation to the slope of the marginal investment cost function, the incumbent may overinvest or underinvest depending on the probability of incorporating an access markup into the access price.