Access by Capacity and Peak-Load Pricing

Several European telecommunications regulatory agencies have recently introduced a fixed capacity charge (flat rate) to regulate access to the incumbents network. The purpose of this paper is to show that the optimal capacity charge and the optimal access-minute charge analysed by Armstrong, Doyle, and Vickers (1996) have a similar structure and imply the same payment for the entrant. I extend the analysis to the case where there is a competitor with market power. In this case, the optimal capacity charge should be modified to avoid that the entrant cream-skims the market, fixing a longer or a shorter peak period than the optimal. Finally, I consider a multiproduct setting, where the effect of the product differentiation is exacerbated.