Discussion Papers

Dr. Karl-Heinz Neumann

Volkswirtschaftliche Bedeutung von Resale
Nr. 230 / Januar 2002


This paper shows that resale of telecommunications services fosters competition and supports essential regulatory objectives. By resale we mean the possibility to (re)sell the services provided by a market dominant operator. Resale not only is a prerequisite for service competition. Apart from this resale brings prices closer to costs and works against price discrimination and anticompetitive behaviour of dominant firms. Thereby resale not only fosters competition, it also improves customer protection against discriminatory practices. The positive regulatory effects of resale do not depend on actual service competition. Even the possibility of resale disciplines the behaviour of dominant firms with regard to competitors and customers. The incentive compatibility of resale supports regulatory policy significantly.

In the US, resale is a strong regulatory principle in telecommunications since nearly 30 years. Service competition on the basis of resale is equally valued to infrastructurebased competition. Although resale has some good tradition in the German mobile market it is developing as a regulatory principle in the fixed line market only recently.

Resellers foster competition on the retail level of the market as well as on the wholesale level. On the wholesale level resellers aggravate collusion of network operators and can reduce market entry costs of new operators. A dichotomy between service and infrastructure competition as often stipulated, does not exist in reality. Resale competition neither impairs network investments nor infrastructure competition. Both types of competition are more complementary to each other. Regulatory policy is not facing a tradeoff but should be neutral with regard to both types of competition and should give opportunities to develop for infrastructure competition as well as for service competition.
The key factor are the procurement conditions of resellers from network operators. Wholesale discounts which reflect the avoidable costs of the retail part of the value chain create an economically optimal competition between integrated network operators and service providers.

Market dominant telecommunications operators should be obliged to accept the resale of their end user services. Regulators should define and set a pricing rule for wholesale services to develop service competition. [only in german available]

Diskussion Paper is available for download.

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