An Econometric Analysis of the Factors that Influence the Deployment of Advanced Telecommunications Services

Transcription

1 An Econometric Analysis of the Factors that Influence the Deployment of Advanced Telecommunications Services David Gabel Guang-lih Huang MIT, ITC Eugene Floyd City University of New York January

2 Market Structure and Innovation Innovation: The practical use of an invention to produce new products or services, to improve existing ones, or to improve the way in which they are produced or distributed. Innovations include technologically improved products or processes, where processes may involve changes in equipment, human resources, or working methods. [National Resource Council, Cooper and Merrill (1997). p. 14] Progress in developing a theoretical understanding of innovation has been hampered by difficulties in measuring and its outputs as determinants of industrial performance and economic growth. Id. Some measure of firm size is frequently included as a determinant in various studies of innovation and adoption. 2

3 A Sampling of the Research Questions How does the form of regulation (e.g., price caps v. rate base rate of return; UNE prices) affect deployment decisions? How does competitive entry into the market affect deployment decisions? How does ownership affect deployment of advanced telecommunications services? How does the InterLATA approval process affect deployment decisions? 3

4 Qualitative Response Regression Model The response variable can take only two values, 0 and 1. A firm either does or does not offer a service. P is the likelihood that a service is offered. We are interested in knowing the probability of something happening hence we refer to probability models. Use caution in interpreting pseudo R^2. For example, in one regression, Stata reported a pseudo R^2 of.2. But the Count R^2 = number of correct predictions / total number of observations = 85%. In this same example, the model predicted a failure (no service) 12% when in fact service was available. For the remaining 3% of the observations, the model predicted service where service was not available. Both the logistic and normal curve (logit or probit) are commonly used for qualitative response regression models. Qualitatively similar results. 4

5 Do Medium Size Companies Invest More in Non- Tier One Areas? Identify wire centers owned by RBOCs (including GTE and SNET) Medium size firms Small size firms Medium firms ALLTEL Carolina Tel Century Tel Cincinnati Bell Citizens Telecom Frontier Sprint/United Valor 5

6 Impact of Rural Utility Service The Rural Utility Service, a federal agency, provides low cost loans to many Independent telephone companies. Congress has passed legislation that requires RUS borrowers to make available advanced telecommunications services to their retail customers. Does the availability of subsidized loans accelerate the availability of advanced telecommunications services? The database includes a field that identifies companies that are RUS firms. 6

7 Analysis of ILEC Tariff Offerings The regression results estimate how economic, regulatory, and market structure variables effect the decision of ILECs to deploy advanced telecommunications services (ATS). We do not include data on the services provided by the CLECs since data on their products and service territory are not as readily available. We do include information on the number of CLECs located within either 1, 3, 5, or 7 miles of each ILEC wire center. We postulate that the presence of a CLEC should have a positive impact on an ILECs tariff offering of ATS. 7

8 Econometric Specification The dependent variable is the availability of packet switching. We have similar results for OC, DS1 and DS3 services. The right-hand side variables are such items as corporate ownership, size of the market, the level of competition, and regulatory environment. Since the level of competition is arguably endogenous to the model, we use Amemiya's Generalized Least Squares (AGLS) estimators for probit with endogenous regressors. Density and the level of income are used as instruments for the level of competition. 8

9 Model Variables Dependent Variable ILEC offers ATM or frame relay services at a wire center (referred to as packet switching ). Explanatory Variables Market Variables: # of people employed in the market; # of households; rural or non-rural area Regulatory variables RBOC received approval to provide InterLATA service as of 5/1/01. The dependent variable was collected on 4/30/01. Federal subsidy to rural areas Regulatory environment as measured in the setting of prices Price caps v. rate-of-return regulation Corporate Size: RBOC v. Medium Size v. Small firm Number of facility based competitors within one air mile 9

10 Probit estimates Number of obs = chi2(10) = Prob > chi2 = Log likelihood = Pseudo R2 = packet2001 df/dx dx Std. Err. z P> z x-bar x # Competitors Approval* RBOCS* Medium_size_ ILECs* Rus_support* Price/ embedded $ # Employees 5.36e e # Households 3.51e e Fed price cap* Rural_fed* obs.. P pred.. P (at x-bar) x (*) df/dx dx is for discrete change of dummy variable from 0 to 1 z and P> z are the test of the underlying coefficient being 0 10

11 Interpreting the Results The presence of facility based competitors raises the likelihood that an ILEC provides packet switching. The InterLATA RBOC approval process raises the likelihood that the ILEC provides packet switching. Being an RBOC or a medium size firm raises the likelihood that the ILEC offers service. Receiving RUS subsidized loans raises the likelihood that service is offered. 11

12 Results continued The higher the ratio of the UNE price to the embedded cost of service the greater the likelihood that the ILEC provides. Stated differently, a state that is friendly to the RBOC is more likely to observe packet switching being provided by the ILECs. The number of people employed in an area served by a wire center, or the number of households, have a positive impact on the likelihood. Price cap firms have a lower likelihood of providing packet switching. Rural companies have a lower likelihood of providing packet switching. 12