Do Unbundling Policies Discourage CLEC Facilities-Based Investment?

Crandall, Robert W.; Ingraham, Allan T.; Singer, Hal J.

doi:10.2139/ssrn.387421

Cited by 15 publications

(10 citation statements)

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“…Crandall, Ingraham, and Singer (2004) try to quantify the sensitivity of CLEC investment in local lines to the UNE rate in the US telecommunications sector. The result reveals that facilities-based lines growth relative to UNE growth is faster in states where the cost of UNEs is higher relative to the cost of facilities-based investment.…”

Section: Access Regulation and Investmentmentioning

confidence: 99%

Broadband investment and regulation: A literature review

Cambini

Jiang²

2009

Telecommunications Policy

269

116

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Section: Access Regulation and Investmentmentioning

confidence: 99%

Broadband investment and regulation: A literature review

Cambini

Jiang²

2009

Telecommunications Policy

269

116

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“…2 See, for example, Robert W. Crandall et al (2004) and Thomas M. Jorde et al (2000). 3 Sunset clauses specify ex ante a period of time after which the ILEC's facilities are no longer regulated.…”

Section: The Modelmentioning

confidence: 99%

“Build-or-Buy” Strategies in the Local Loop

Bourreau

Doğan

2006

American Economic Review

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The nature of competition in local access telecommunications networks is shaped by the "build-or-buy" decisions of the competitive local exchange carriers (CLECs). Facility-based competition takes place when a CLEC "builds" its own infrastructure (e.g., wireless local loop, cable network, fiber-optic network, satellite network), whereas service-based competition takes place when a CLEC "buys" some network elements from the incumbent local exchange carrier (ILEC). Two main ways to achieve servicebased competition are resale and local-loop unbundling. 1 A serious concern with mandatory local-loop unbundling is that it may undermine incentives for facility-based competition. 2 In order to achieve transition to facility-based competition, Jerry A. Hausman and J. Gregory Sidak (2004) suggest that regulators allow the prices for fixed unbundled elements to increase over time, while Thomas Jorde et al. (2000) suggest that mandatory unbundling should sunset after the passage of two years or upon the entry of a facility-based competitor.In this paper, we challenge the implicit assumption behind sunset clauses, 3 namely that the ILEC would either deny unbundling or charge too high a price for its network elements in the absence of regulation. We do this by analyzing an unregulated ILEC's decision regarding unbundling in an unregulated environment. 4 We make the realistic assumption that the cost of building the facility declines over time. In a dynamic setting we show that an unregulated incumbent sets a rental path for its local loop, which delays facility-based entry, compared to the case in which there is no unbundling. The equilibrium rental path set by the unregulated incumbent is prohibitively high at the initial phases when there is no effective threat of facility-based entry, and it is decreasing over time during later phases following the rise of the entrant's opportunity cost of leasing lines. We argue that neither allowing higher prices for unbundled elements over time nor setting a sunset clause would suffice to induce facility-based competition. The ILECs that initially resist unbundling requirements will tend to charge attractive access prices (relative to the CLECs' alternatives) for their infrastructure, which become less essential over time. Therefore, the appropriate policy for regulators is to commit to ban unbundled access when facilitybased entry becomes feasible and socially desirable.

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“…9 See, for example,Crandall et al (2004) andEisner and Lehman (2001). In addition,Hazlett (2005) contends that mandatory network sharing has had the effect of reducing rather than stimulating facilities-based investment.…”

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confidence: 99%