Proactive Price Regulation for Upgrading Telecommunications Infrastructure

The extent to which society benefits from an upgrade to a telecommunications network infrastructure depends on when that upgrade occurs. This paper discusses a proactive pricing approach in which the regulator defines a pricing policy to induce a profit-seeking monopoly carrier to upgrade the infrastructure at the socially desirable time. We discuss how the regulator can determine the optimal time to upgrade the infrastructure, and specify a proactive pricing policy to induce that timing. We also demonstrate a tradeoff between promoting social efficiency and protecting consumer interests in applying that approach.