Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: We argue that geographical cross-collateralization – a firm’s ability to pledge incomes earned in more populated areas as “collateral” for the loans needed to finance investments in less populated areas – plays an important role for ensuring universal coverage of next generation communication networks. Our main result is that when firms are capital-constrained, co-investments in urban areas enhance geographical cross-collateralization and thus contribute to universal service through increased coverage for rural consumers. Co-investment may, in addition, introduce retail competition to the benefits of sub-urban consumers. The catch is that urban consumers may suffer from lower infrastructure competition. Co-investment policy therefore may raise tradeoffs between consumers in different (relevant) geographical markets.

Keywords: joint venture; universal service; cross-collateralization; cross subsidization

JEL-codes: D43; K22; L24; L51

Language: English

40 pages, September 20, 2024

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