Power of Incentives and Optimal Time of Investment in a Building-Blocks Approach to Regulation of an Open-Access FTTH Network

Abstract

New Zealand’s amended Telecommunications Act, 2018 New Regulatory Framework, describes new regulations primarily based on regulation already used in electricity lines, gas pipelines, and airports. This regulatory approach, new to the telecommunications sector and known as the Building Blocks Model (BBM), seeks to determine “price-quality paths” and “information disclosure determinations” based on the condition that the present value of the firm’s allowed revenue is equal to the present value of the firm’s expenditure. This article investigates the impact of the incentive structure on the regulated firm’s investment behavior. More specifically, it models and analyses the incentive structure provided by the implementation of BBM in the wholesale fiber-based broadband market of New Zealand, as well as its effects on the timing of investment.