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Broadband Deployment: The Impact of Unbundling

Broadband Deployment: The Impact of Unbundling. Martha Garcia-Murillo School of Information Studies Syracuse University ABA workshop on broadband Washington DC July 2005. Research question. How does unbundling affect the deployment of broadband?

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Broadband Deployment: The Impact of Unbundling

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  1. Broadband Deployment: The Impact of Unbundling Martha Garcia-Murillo School of Information Studies Syracuse University ABA workshop on broadband Washington DC July 2005

  2. Research question • How does unbundling affect the deployment of broadband? • Factors that affect deployment of infrastructure • Unbundling • Ownership and competition • Content

  3. Unbundling • Unbundling requirements impair infrastructure because it discourages investment in new facilities (Jorde, Sidak, and Teece, 2000) • TELRIC-based prices discourage ILECs from investing in new facilities and services. (Crandall, 1999) • Governments should adopt policies that spur entry because rivalry among firms will compel them to innovate (OECD, 2001)

  4. Ownership • Scholars have found positive impacts of privatization on infrastructure deployment (Galal et al, 1992; Ramamurti, 1996; Wellenius, 1994) • But.. • A private company may only be interested in the most profitable segments • In contrast, governments aim to maximize the welfare of society (Adam, et al. 1992).

  5. Content • Governments and private sector officials around the world believed that compelling content would drive demand for broadband (Wilhelm and Bickers, 2000) • The price for connections to the international Internet backbone can raise the price of broadband services and discourage adoption. Thus, local content is less expensive.

  6. Hypothesis H1: Unbundling is positively related with Broadband provision H2: Privatization of the incumbent carrier is positively related to broadband subscriptions H3: The availability of domestic content is positively related to broadband subscriptions

  7. Competition Monopoly Duopoly Partial competition Full competition No broadband available 66.9 2.07 14.48 16.55 Broadband available 12.2 2.44 12.2 73.17

  8. Unbundling and broadband

  9. Provision of broadband • For the most part, market conditions determine whether or not broadband will be made available. These include: • Level of competition • Income level of the population

  10. Unbundling results • In the regression models that were analyzed, unbundling was not significant. BUT… Competition was significant in all of the models. Thus, is unbundling important for broadband? To the extent that unbundling creates competition it is.

  11. Broadband Supply • Successful broadband expansion has been characterized by: • Having a competitive market structure • Open access • Strong competitive carrier • Inter-modal competition • Having government programs in play that focus on broadband

  12. Korea • Limited English, non-Latin alphabet • 5th in broadband penetration • DSL suppliers have access to KT local loop • Hanaro Telecom (owners: LG, Smaun, SK Telecom) is the second most important provider • Connections by DSL, cable LAN, Satellite or WLAN

  13. Canada • Since end-1998, Canada has had open market entry in all sectors of telecommunications services. • DSL providers are prohibited from provide voice services over switched circuits • In 1997, the CRTC’s decision on local competition (Decision 97-8) concluded that essential facilities should be subject to mandatory unbundling and mandated pricing. An essential facility was defined as a facility that: (1) is under monopoly control; (2) is required as an input to provide services; and (3) cannot be duplicated economically.

  14. Japan • After having no broadband market at the end of 2000, Japan climbed to 12th ranking in the world per capita at the end of 2002 • DSL speeds upgraded from a maximum of 1.5Mbit/s in 2001, to a maximum of 8Mbit/s or 12Mbit/s in 2002 • Aggressive competition among broadband operators has led to the world's lowest prices - prices affordable to the Japanese masses • LLU makes incumbents' local lines available to consumers, and makes space in their exchanges, use of certain circuits and an array of important ancillary facilities available for other operators in order that they can provide their telecommunication services over those lines

  15. Iceland • Iceland had the highest Internet penetration in the world. Mostly a duopoly market • Telecom Regulation in line with the EU • 1996 revisions to the 1993 TA open the telecommunication sector to full competition • The TA mandated the opening up of the incumbent’s telecommunication network to competitive providers. • EU: Mandating access to network infrastructure can be justified as a means of increasing competition, but national regulatory authorities need to balance the rights of an infrastructure owner to exploit its infrastructure forits own benefit, and the rights of other service

  16. Implications • Government promotion of broadband is desirable if they can promote competition, entice usage, foster the development of local content and set up mechanisms that reduce the price of the service.

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