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.
Attachments
Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He was the economics director for the FCC's National Broadband Plan and has been a lecturer in Stanford University’s public policy program, director of communications policy studies and senior fellow at the Progress & Freedom Foundation, a senior fellow at the AEI – Brookings Joint Center for Regulatory Studies and a resident scholar at the American Enterprise Institute, an economist at The World Bank, a scholar at the Stanford Institute for Economic Policy Research, and a staff economist at the U.S. President’s Council of Economic Advisers. He holds a PhD in economics from Stanford University.