Access deregulation in deploying the next-generation infrastructure: an econometric analysis of mandatory unbundling

Abstract

Many countries are contemplating the policy instruments necessary for developing next-generation networks (NGNs). Access regulation is the most effective approach for unleashing broadband competition. However, few studies have examined the applicability of access regulation to NGNs. We investigate the impact that unbundling local loops (ULL) has on broadband uptake and developing an NGN. We analyze the strategic response of market players, such as market entrants, telecommunication incumbents, and cable operators, under the ULL regime. Entrants have low incentive to own an alternative infrastructure; whereas, incumbents prefer to upgrade their networks to be exempt from ULL regulation. Because of the effects of inter-platform competition, cable operators also develop an NGN once they observe the incumbents' migration response. This paper examines econometric panel data from 42 OECD and APEC member economies between 1991 and 2009. The statistical results demonstrate that the unbundling mandate (1) significantly stimulates the DSL penetration rate; (2) indirectly influences the growth of the cable Internet penetration rate; and (3) raises the likelihood that a country deploys an NGN. A case study using Taiwan confirms the positive impact of mandatory unbundling developing an NGN. We conclude that the status quo ULL regime should remain in effect because this regime causes incumbents to invest in an NGN to be exempt from the regulation. Deregulating unbundled access should not be considered a policy option in promoting NGN deployment. We suggest that the current ULL regime could be a more favorable policy stimulus, provided the regime maintains credibility.