Local Loop Unbundling: One-Way Access and Imperfect Competition

Abstract

This paper analyzes one-way access and, in particular, local loop unbundling (LLU) in telecommunications markets. At present, LLU seems most promising as a means for entrants to offer broadband internet access. As voice telephony can be implemented by using the 'internet protocol' when consumers have broadband access, LLU may, in the end, spur competition in markets for voice telephony as well. Thus LLU is an important way to stimulate competition in the broadly defined market for fixed telecommunications. In this paper we explore situations of one-way access in which the entrant, the firm without the essential input, has market power. We first review the nature of LLU when there is full consumer participation. Next, we explore the case of partial participation, where the entrant can attract further participation. In the first case, unbundling requirements are neutral to competition. This result breaks down under partial consumer participation. Hence, regulation of unbundling requirements should be particularly concerned with market segments such as broadband access in which partial participation seems to be a key feature.