Access Deregulation in Deploying the Next Generation Infrastructure: An Econometric Analysis of Mandatory Unbundling

Many countries are contemplating the policy instruments necessary for developing the next generation network (NGN). Access regulation is considered the most effective approach for unleashing broadband competition. However, few studies have examined the applicability of access regulation of the NGN. This paper investigates the impacts that unbundling local loops (ULL) has on broadband uptake and the NGN undertaking.This paper analyzes the strategic response of market players, such as market entrants, telecommunication incumbents, and cable operators, under the ULL regime. The entrants have low incentive to own an alternative infrastructure; whereas, the incumbents prefer to upgrade their networks to be exempt from the ULL regulation. Because of the effects of inter-platform competition, cable operators also engage in NGN development 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 the NGN. A case study of Taiwan also confirms the positive impact of mandatory unbundling on the NGN undertaking.We conclude that the status-quo ULL regime should remain in effect because it causes the incumbents to invest in the NGN to be exempt from the regulation. Deregulation of unbundled access should not be considered as a policy option in promoting NGN deployment. This paper suggests that the current ULL regime could be a more favorable policy stimulus, provided it maintains credibility.