Mandating access usually  means that access prices have to be regulated too: the owner of the essential facility cannot use its market power to control supply because open access is mandated and regulated access pricing stops it using its market power to control the price.
In trying to support competitive processes, regulated access pricing seeks to achieve three forms of economic efficiency:
- Allocative efficiency requires that resources, products, and services are allocated to the person or persons who value them the most. For this to happen, consumers of final products or services (such telephone calls to other customers) should pay prices that reflect the cost of the resources used to provide those products or services
- Productive efficiency requires that market participants use scarce resources as productively as possible. This means that the most efficient provider should not be precluded from serving customers, and
- Dynamic efficiency requires that all firms (entrants and incumbents) should have proper incentives to invest in technologies that reduce costs and/or expand product offerings.
It is unlikely that these can be achieved simultaneously. More importance has been given to dynamic efficiency as the policy focus has shifted from accommodating legacy issues associated with opening access to copper networks to encouraging investment in fibre networks.
In addition, there are social objectives. Historically, many incumbent operators have maintained high prices for long distance and international services, and used the proceeds to support below-cost prices for basic services. This was made possible by statutory monopoly and allowed the wide-spread adoption of affordable telephone service. However, with the introduction of competition for calls these cross-subsidies became unsustainable. Competitive pressures eroded long distance and international prices and regulated low prices for basic service became unsustainable.
Box 4.1: Geographic Cross Subsidy
Policy makers generally like uniform pricing; a social objective that conflicts with economic efficiency objectives. In Australia, Telstra argued that the ACCC was a ‘rogue regulator’ because it de-averaged unbundled local loop (ULL) prices across four regional types. Other access products like line sharing (LSS), wholesale line rental (WLR) and local calls are not de-averaged. This means that entrants can opt to use these instead of ULL in remote areas.
The presence of different access products reduces the ability to extract cross-subsidies.
When Telstra sought to build a metro-only FTTN, it was agreed that the access price for the new bitstream service should include a contribution to support telephony services to 1 million rural and remote customers. But the gap between the $1.77 per month offered by the ACCC and the $13.69 per month sought by Telstra was too big and the FTTN plan was dropped.
Source: ACCC Final Decision on Fixed Services, July 2011 and Telstra’s FTTN Briefing, 7 August 2006
In the era of call competition, regulators had to rethink the justification for pricing policies aimed at keeping prices for basic service low and consider rebalancing tariffs to better reflect economic costs.
Among the policy challenges in moving to digital networks,
· the relative prices of wholesale services may affect the transition from copper to fibre and consistency among them is essential. Take-up of fibre access has been slow where it has to compete with copper access services which have low regulated prices
· off-setting the above, as users move off copper to fibre, cable and mobile services the unit costs of copper and consequently access prices increase; which raises affordability concerns got the users left on copper
· the migration to IP Interconnection raises transitional issues and there is no consensus yet on how to price digital interconnection
Fibre presents a new challenge for policy. Operators are facing potentially significant investment costs to upgrade existing infrastructure to keep up with technological change. However, revenues for new broadband services are uncertain and existing revenue streams are threatened by ‘over-the-top’ services. The most certain source of revenue is retail access pricing – and that is threatened by open access and increasingly capable mobile broadband.
Box 4.2: Asymmetric Risk Example
Suppose an operator is considering whether to build a FTTH access network in a particular region. Revenues are uncertain. If demand is strong, the network could generate profits of $10m a year but if there is a lack of demand there will be annual losses of $8m. If these cases are considered equally likely, the expected profit is $1m and the investment will be made – if the operator has a monopoly.
If, however, the network is successful and a new entrant gets access and takes 40 per cent of the market, the profits to our investor could be cut from $10m to $6m a year. The expected return is now minus $1m a year – the investment is not profitable with open access. That is, the risk of open access can make a profitable and socially desirable investment unprofitable and it will not proceed.
Box 4.2 not theoretical. Private operators have been slow or reluctant to invest in broadband. In the USA, the FCC broke the impasse by forbearing to regulate broadband access  and the German and Australian incumbents unsuccessfully sought ‘access holidays’ long enough to get a return on their prospective investments .
The problem with ‘access holidays’ is that it gives the incumbent too much of a ‘first-mover’ advantage. That leaves the problem of how to set an access price for fibre networks that satisfies a number of objectives simultaneously:
- It must provide a return on large investments
- It must ensure that broadband access remains affordable to end users
- It must provide affordable open access for wholesale customers
- It must not foreclose investment (eg FTTH extensions to FTTN)
- It must satisfy government social equity objectives (eg USO and uniform pricing)
Pricing for copper networks appeared to discourage investment in fibre access networks leading some regulators to seek new models for pricing interconnection .
 Regulators can mandated access without committing to regulate the price too. New Zealand distinguishes between ‘specified services’ where the Commerce Commission cannot determine the ‘price payable’ and ‘designated services’ where it issues pricing determinations. Some countries leave it to the parties concerned to negotiate ‘fair and reasonable’ prices.
 The FCC decided to forbear from unbundling and price regulation of FTTH in August 2003, extended this to FTTN in October 2004 and also DSL in September 2005.
 Initially, the Federal Network Agency in Germany supported Deutsche Telekom but under pressure from the EU it made an order in September 2010 subjecting VDSL (FTTN) , FTTH lines and Ethernet-based bitstream access to regulation. In Australia, Telstra sought concessions from the Australian government in 2005 ahead of building an FTTN network but these were refused so it chose to invest instead in unregulated HFC and mobile broadband networks.