Monday, March 07, 2005

Telecom

Did Mandatory Unbundling Achieve Its Purpose? Empirical Evidence from Five Countries

JERRY A. HAUSMAN
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)
J. GREGORY SIDAK
American Enterprise Institute (AEI)

MIT Department of Economics Working Paper No. 04-40

Abstract:
In this article, we examine the rationales offered by telecommunications regulators worldwide for pursuing mandatory unbundling. We begin by defining mandatory unbundling, with brief descriptions of different wholesale forms and different retail products. Next, we examine four major rationales for regulatory intervention of this kind: (1) competition in the form of lower prices and greater innovation in retail markets is desirable, (2) competition in retail markets cannot be achieved with mandatory unbundling, (3) mandatory unbundling enables future facilities-based investment (stepping-stone or ladder of investment hypothesis), and (4) competition in wholesale access markets is desirable. We proceed by testing empirically the major rationales in the United States, the United Kingdom, New Zealand, Canada, and Germany. For each case study, we review the mandatory unbundling experience with respect to retail pricing, investment, entry barriers, and wholesale competition. We review the lessons learned from the unbundling experience. We also identify which rationales were incorrect in theory and which rationales were correct in theory yet were not satisfied in practice. For the second category of rationales, we attempt to provide alternative explanations for the failure of mandatory unbundling to achieve its goals.
Jerry Hausman and Greg Sidak are two highly-prolific scholars of the telecom industry, and their study should be worth reading.

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