| Telecommunication service is playing an increasingly important role in the mod-ern economy, which requires a larger scale of physical infrastructure networks with higher level of quality. The physical networks in telecommunication industry are natu-ral monopoly, long-lived, irreversible, and have large sunk investment costs and main-tenance costs. What’s more, there is asymmetric information on investment costs between the infrastructure supplier and the regulator. In order to keep a healthily grow-ing telecommunication service, we set a two-period model to simulate the regulation for infrastructure networks supply in long-term.With the regulatory contracts in our thesis, the maximum consumer surplus could be achieved and the optimal strategy for the monopolist is to report its true investment costs and obey the contracts it signed beforehand.The result of the game between the regulator and the monopolist shows that asym-metric information provides the firm with non-negative information rents and postpone the networks supply in long-run. Comparing with the unit investment cost, unit mainte-nance cost has bigger influence on regulated networks supply. More efficient the firm is, lower networks price could be offered to consumers, and this gives more networks supply in early periods. What’s more, higher discount ratio means that both the firm and the regulator are more patient about future incomes, which encourages early invest-ments. Larger expected demand variance range shares the same effect.With the above analysis, we find it necessary to found an independent institution to organize the networks building nationwide, while to establish branches in different areas in order to update costs observation and regulation according to different condi-tions. Works on predicting and reducing both investment costs and maintenance costs should be done. If the regulator could keep the society’s confidence on this market, the networks investments could be brought forward. |
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