Economic replicability tests: an “out-of-the-box” implementation

Regulation of Next Generation Access Networks (NGANs) has been one of the most debated topics throughout the European Union (EU). Now it seems to be seeking to strike a new balance, between promoting NGANs investments and, simultaneously, preserving the current level of competition. This much-sought reconciliation was attempted with the release of European Commission (EC)‘s Recommendation 2013/466/EU on consistent non-discrimination obligations and costing methodologies for the promotion of competition and the enhancement of the broadband investment environment. The Recommendation, among others, defines the use of Economic Replicability Tests (ERTs), on the basis of a Discounted Cash Flow (DCF) approach, as the proper methodological tool to determine whether the dominant firm (i.e., incumbent operator) engages in a discriminatory behavior. The aim of this paper is twofold; first to investigate the impact of long-term access pricing agreements on ERT conduct as defined in Recommendation 2013/466/EU; second, in the light of the review of the aforementioned Recommendation, to attempt a non-conventional implementation of the test. The latter manifests itself via the potential use of Real Options Theory (ROT) within the ERT formulation on top of DCF results. The main objective is to investigate whether the fixed part of the wholesale access price - if the latter is seen as a two-part tariff - can actually be included in the calculation process to the contrary of what Jaunaux and Lebourges [ 39 ] suggest.