Access prices indexed to geographical coverage of innovative telecom services

The literature on access prices and investment has suggested that firms under-invest when subject to an access provision obligation combined with a fixed access price per consumer. In this paper, I study an access price per consumer for an innovative service such as super- fast broadband provided by a regulated firm that is a function of its geographical coverage (indexation approach). The indexation approach can enhance economic efficiency beyond what is achieved with a fixed access price under a set of standard assumptions. In particular, it can simultaneously induce the firms to set lower retail prices, lead to wider geographi- cal coverage of innovative services and higher social welfare level compared with a fixed access price. Moreover, in the model, the indexation may be used to achieve approximately the Ramsey outcome, or the first-best coverage level. I address how a regulator can set the access price indexation optimally, based on the coverage cost plus an incentive. I highlight the potential role of indexation as a tool to reduce the need for public subsidies and the associated tax distortions when compared with a fixed access price.