Unbundling the local network and the incentives for broadband investment Available to Purchase

The US government is considering removing regulations on ILECs (incumbent local exchange carriers) with respect to local access services, through the implementation of legislation. These regulations imposed through the US 1996 Telecommunication Act, include local network unbundling and TELRIC pricing, and, in our view, set the correct economic incentives for efficient investment in the telecommunications industry, and industries using telecommunication services. Critics argue that unbundling requirements and TELRIC pricing are negatively affecting investment incentives of the ILECs. This paper uses empirical data to study the causes of varying degrees of DSL take‐up in Western Europe and the US. The analysis shows that, rather than disincentivising incumbent investment, local network unbundling actually provides a competitive stimulus for incumbents to achieve higher rates of take‐up for their own DSL services. Any departure from unbundling and TELRIC prices would protect ILECs against competition in downstream services, and dampen incentives for efficient service provision.