Remedies for non-price discrimination: their application in the UK broadband market and their effect on investment decisions

Cadman, Richard (2015) Remedies for non-price discrimination: their application in the UK broadband market and their effect on investment decisions. Doctoral thesis, University of East Anglia.

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In 2004, Ofcom launched a strategic review of the telecommunications market. This established that the expectation of non-price discrimination by the incumbent
operator, BT, against its smaller rivals was a significant concern holding back investment in market entry via local loop unbundling (LLU). To address this problem,
Ofcom and BT agreed a set of Undertakings in lieu of a reference to the Competition Commission. BT agreed to a new form of non-discrimination remedy referred to as
Equivalence of Input (EoI) and to a set of organisational changes known as functional separation. Under EoI, BT’s retail division had to use the same inputs under the same terms and conditions as its rivals. Functional separation referred to the creation of a separate access services division that would supply services in markets where BT was dominant.
This thesis discusses the economic principles of network industries and why discrimination can be a particular problem. It makes three specific contributions to knowledge of the subject. First, a historical record of the actions and issues that led to the Undertakings. Secondly, a breakeven analysis to determine how effective the
Undertakings, and other regulations imposed by Ofcom, were at correcting the problem of non-price discrimination. The breakeven analysis establishes the location
of “marginal exchange” before and after the regulatory changes. Finally, an assessment of the longer-term consequences by employing a discrete choice model
to determine whether the presence of entrants using LLU or Virgin Media had a stronger effect on where BT installed fibre.
The thesis concludes that the Undertakings did affect the location of the marginal exchange by up to 950 exchanges covering 31% of customer premises. LLU price
cuts imposed by Ofcom moved the marginal exchange by a further 796 exchanges: 11% of premises. The thesis also finds that up till the end of 2012, the presence of LLU operators had a stronger influence on the location of fibred exchanges than Virgin Media.

Item Type: Thesis (Doctoral)
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Depositing User: Jackie Webb
Date Deposited: 26 Jun 2015 15:21
Last Modified: 26 Jun 2015 15:21


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