Policymakers generally hope to encourage competition, but often do not agree on what form competition should take. In network industries with high sunk costs and low marginal costs some believe that competition is best encouraged by requiring incumbent firms to allow entrants to use the incumbent’s infrastructure to offer competing services. Others argue that such rules can discourage investment in that infrastructure. In telecommunications, these so-called “unbundling” regulations are controversial. The original unbundling controversy was concerned with voice communications, but now focuses on broadband. While the United States has moved away from unbundling regulations in recent years, the European Union has increasingly adopted them in order to stimulate broadband investment.
This paper assembles a unique panel dataset to test the effects of different types of unbundling regulations on broadband penetration and speeds. I find that unbundling regulations do not promote broadband investment and may even reduce it. I also find, however, that complementary collocations regulations— rules on how entrants can interconnect with the incumbent’s network—matter. Rules that make it easier for an entrant to interconnect are positively correlated with broadband penetration and speed while rules that make it more difficult to interconnect are negatively correlated with penetration and speed.
