Wholesale unbundling and intermodal competition

This paper explores the effects of network unbundling in telecommunications. It includes discussions of the basic economics of unbundling; the competitive effects of unbundling on voice services in the US and broadband in the US and the European Union; and unbundling policy in a world of convergence. Mandatory unbundling can delay facilities-based entry and reduce network investment, particularly if unbundled input prices are set too low. Excessive prices for essential network elements could hamper competitive entry. Some argue that mandatory unbundling has stimulated competition; however, the results suggest that when relevant demand and supply determinants are included in the analysis, the association between mandatory unbundling and increased broadband penetration is not statistically significant. Assessing the costs and benefits of unbundling is more difficult because of convergence and intermodal competition among the video, wireless and telephone providers. Thus, the dynamic nature of the sector and the costs of implementing mandatory unbundling imply that policy makers should carefully examine the costs and benefits of regulatory intervention.