EuropeanTelecomsLostInvestmentAnanalysisoftheECTAScorecard.docVIP

European Telecom’s Lost Investment: An analysis of the ECTA Scorecard Richard Cadman and Chris Dineen Updated 27 April 2006 Strategy and Policy Consultants Network Ltd Chapel House Booton Norwich NR10 4PE United Kingdom Tel: +44 1603 871162 Email: info@spcnetwork.co.uk  ? Strategy and Policy Consultants Network Ltd 2006 Articles may only be reproduced in whole or part if you acknowledge Strategy and Policy Consultants Network Ltd (SPC Network) as the author. Every attempt has been made to ensure that the information is accurate at the time it is published. However, SPC Network and its employees cannot be held responsible for any errors, omissions and accept no liability for any loss, however arising, that may arise from the use of this information. Executive Summary The ECTA Regulatory Scorecard 2005 shows significant differences in levels of regulatory effectiveness across the European Union. In this paper we have combined the updated 2005 Scorecard data with results from 2002 and 2004 to enhance our economic analysis with a more robust model of the effect of regulation on investment by pooling the data from all three Scorecards. We have also brought in an additional explanatory variable: labour productivity in communications industries. We continue to find that there is a strong, positive and statistically significant relationship between regulatory effectiveness and investment. We find that 63% of the variation in investment levels can be explained by differences in regulation and in labour productivity. We have also calculated an elasticity coefficient showing by how much we expect investment to increase with regulatory effectiveness. We estimate that for every 1% increase in regulatory effectiveness there will be a 0.47% increase in investment. Applying this elasticity to EU investment in electronic communications, we find that if all countries achieved 100% regulatory effectiveness, as measured by the Scorecard, annual investment would increase by €13.1 bil