Unbundling the local loop: a cost/benefit analysis for developing nations

Abstract

PurposeThe purpose of this paper is to assess the costs and benefits of local loop unbundling with an eye toward determining whether developing countries should pursue this strategy despite the significant controversy it has generated in the USA.Design/methodology/approachThe paper examines arguments for and against local loop unbundling and determines which claims make economic, legal and practical sense and which claims support stakeholders' other public policy objectives.FindingsThe paper identifies legitimate reasons for favoring and opposing local loop unbundling. However, the paper also finds false justifications, unsupported by economic and legal principles, that serve incumbents' quest for further deregulation and securing greater incentives for investment in next generation infrastructure, and market entrants' interest in exploiting margins without having to invest in infrastructure. The paper provides recommendations on how developing countries can implement local loop unbundling that balances public benefits against specific downside risks and costs borne by incumbents or market entrants.Practical implicationsThis paper supports conditional implementation of local loop unbundling by developing countries that concludes at a future date and incorporates desirable incumbent deregulation and liberalization.Originality/valueThe author has received no financial sponsorship from one or more of the stakeholders to prepare this paper. This paper offers an unbiased assessment of the benefits and burdens imposed by local loop unbundling.