Unbundling and infrastructure competition for broadband adoption: Implications for NGA regulation

The common idea of open access policy is that it refers to the sharing of particular elements, such as wholesale access networks, backhaul, under-sea cable and internet exchange points in fixed and mobile networks. In broadband networks, the use of open access policy usually refers to the infrastructure parts, which are considered a bottleneck. Many regulators have generally focused open access policy on fixed broadband networks, especially digital subscriber line (DSL) technology, in the last decade. Local loop unbundling (LLU) regulation is one of the main strategies for the regulator to open access to an incumbent’s bottleneck network in order to soften its monopoly power and encourage competition in the DSL broadband market. The OECD countries have different strategies regarding unbundling local loop and infrastructure competition, as the characteristics and infrastructure networks of countries vary. There are currently more choices of next generation network (NGN) technologies to develop. While local loop unbundling may not be applied fully to NGN development (the cost is not sunk, more technologies are available to implement, incentive of investment by operator), it can indicate benefits and drawbacks of open access policy in the past decade that can be adapted to NGN.The empirical results of this study show that during 2002–2008, LLU regulation was one of the strategies used to increase broadband adoption in countries that had difficulty encouraging infrastructure competition. Unbundling regulation can therefore be implemented carefully and differently in each country that has inefficiency that is harmful to consumers in its market from a monopoly incumbent. Infrastructure competition, on the other hand, is introduced as another strategy to increase broadband adoption. The empirical results of this study indicate that infrastructure competition can be used as a strategy when there are already enough infrastructures in the area or country. These results support the idea of using open access and infrastructure competition policy depending on the existing competition of broadband infrastructure in each country.     

Cable television and competition : Theory, evidence and policy

There is currently widespread discussion in the USA of the merits of amending legislation to allow competition in the cable television market, notably from the telecommunications companies. This article explores what economic theory can contribute to this debate, and adduces empirical evidence on the effects of competition in the cable market where it presently exists. The authors conclude that blocking entry into cable, and indeed into telecommunications markets, is likely to be poor policy, and that increased competition would foster the development of an efficient modern broadband network.     

The impact of intra-platform competition on broadband penetration

There has been an extensive debate about the role of broadband access regulation on market outcomes. This paper estimates the impact that the different modes of competition have had on broadband take-up to date, using a data set for EU27 countries. We find that ULL, which is one of main types of access-based competition in Europe, has had a positive impact on broadband take-up. However, the impact of ULL becomes smaller as its share increases. That is, ULL entry is less effective in areas where ULL take up is already high. Further, there is evidence of a crowding out effect between ULL and inter-platform competition. This means that ULL is less effective in enhancing broadband penetration in the areas where alternative networks already have a significant share of broadband lines.     

Estimating broadband diffusion in the EU using NUTS 1 regional data

In this paper we use panel data on NUTS 1 regional data for 27 EU countries in the years 2006–2010 to analyze determinants of broadband diffusion. We estimate both linear demand specification and the logistic diffusion function. We find that, after controlling for regional differences due to socioeconomic factors, inter-platform competition approximated by an inter-platform Herfindahl index has a significant positive impact on broadband diffusion. Broadband deployment is lower in countries in which DSL has a greater share in Internet access and it is higher in countries in which cable modem has a greater share in Internet access. Moreover, we find that competition between DSL providers has a significant and positive impact on broadband penetration. First, higher prices for a fully unbundled local loop connection, which represent the cost of providing copper-based Internet services, have a significant and negative impact on broadband penetration. Second, a greater incumbent share in DSL connections has a significant and negative impact on broadband penetration.     

Strategic investments under competition for access provision

We examine competition for access provision when symmetric vertically integrated firms invest in infrastructure upgrades. Spillovers through access have two effects (a wholesale-profit effect and a retail-production effect) on infrastructure investment made by vertically integrated firms. When the vertically integrated firms freely set access charges, due to the dominance of the wholesale-profit effect, quality differentials endogenously occur between these firms (asymmetric equilibria). When access charges are regulated, symmetric equilibria occur with multiple equilibrium investments due to the retail-production effect. Because competition for access provision induces a strong incentive for infrastructure investment, it also achieves a higher social welfare than does access regulation.     

Facilities to service based competition,not service to facilities based,for broadband penetration: A comparative study between the United States and South Korea

As a fundamental infrastructure in the Era of Information, a broadband network has a significant impact on democracy, economy, and society, indicating the importance of policy to increase broadband penetration. Considering the characteristics of broadband as a network, many governments introduced service-based competition, which is assumed to lower entry barriers by allowing entrants to lease incumbents' facilities, as a stepping stone to facilities-based competition.Questioning this unidirectional approach, the present study examines how the direction of policy implementation, that is service- to facilities-based versus facilities- to service-based, affects broadband diffusion. Through the case study of the U.S. and South Korea which experienced both modes of competition in opposing temporal sequences, this research concludes that facilities- to service-based competition might contribute to higher and faster broadband diffusion than service- to facilities-based competition. Rather than impose unbundling obligations against incumbents, facilities-based competition with financial support of the government to entrants seems to induce an earlier peak in broadband penetration. Additionally, consistent commitment of the government enforcement appears to be critical in implementing service-based competition.Though limited to the cases of the U.S. and Korea, this study suggests that service-based competition may be neither a necessity to facilitate broadband diffusion nor a precondition to introduce facilities-based competition. Moreover, service-based competition policy can function to deter overbuild of facilities and lessen the financial burden of broadband service providers if adopted after an initial period of facilities-based competition policy, which includes government investment in broadband facilities, that seems to help promote competition and give incentives to construct networks.Contrary to the literature, the present study raises a new perspective of the role of service-based competition as an enhancer for service quality and that of facilities-based competition with government investment as a booster of early and rapid broadband diffusion.     

The impact of different fibre access network technologies on cost,competition and welfare

Using a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model with wholesale access regulation this article evaluates the choice among different Fibre-to-the-Home (FTTH) architectures. The cost modelling relies upon an engineering bottom-up approach that feeds into a competition model. For addressing competition the pyramid model was chosen, which is an extension of the Hotelling model to multiple firms/services. The paper solves for price setting Nash equilibria between an incumbent, wholesale-access-based entrants and cable as an additional fully integrated network competitor. Welfare tradeoffs are highlighted with respect to cost differences and QoS differences between the various FTTH architectures and between the modes of regulation. According to the analysis architectures that can be unbundled (and that allow for greater speeds) outperform, from a social welfare perspective, architectures that (realistically) allow only for bitstream access.     

Multilevel governance and broadband infrastructure development: Evidence from Canada

This paper investigates the contributions of digital infrastructure policies of provincial governments in Canada to the development of broadband networks. Using measurements of broadband network speeds between 2007 and 2011, the paper analyzes potential causes for observed differences in network performance growth across the provinces, including geography, Internet use intensity, platform competition, and provincial broadband policies. The analysis suggests provincial policies that employed public sector procurement power to open access to essential facilities and channeled public investments in Internet backbone infrastructure were associated with the emergence of relatively high quality broadband networks. However, a weak essential facilities regime and regulatory barriers to entry at the national level limit the scope for decentralized policy solutions.     

Race to the top: Does competition in the DSL market matter for fibre penetration?

High speed broadband creates potential productivity gains and has a positive impact on economic growth. Achieving Europe's broadband access objectives will require large scale investment in next generation broadband networks, and it is imperative that an appropriate investment climate is created to encourage fibre network rollout. This study considers whether and how competition in the DSL market affects the incentives of operators to invest in the deployment of high-end fibre optic networks. Most earlier research on the drivers of investment in broadband technology has focused on the effect of mandatory access policies, such as local loop unbundling, or competing infrastructures. We posit that competition in the DSL sector may also influence fibre penetration, possibly to a considerable extent. We find that the relationship between service-based competition and fibre penetration is non-linear: a lack of or severe DSL competition is correlated with a negative effect on fibre penetration, but if a moderate degree of competition is already present in the market, more service-based competition may positively influence fibre penetration. The scale of these effects however varies with the openness of the DSL market: operators' incentives to invest in fibre appear to be more sensitive to changes in DSL competition if there is extensive local loop unbundling.     

Maximizing the adoption of fixed number portability within the EU: An empirical analysis

Number portability (NP) is considered by the European Commission as a key measure for promoting competition within the telecom sector especially regarding network access infrastructure. However, NP requires several modifications to the network architecture and to the business processes of each operator that, depending on network size, may result in a significant financial cost. This is true for fixed networks in particular. Given the requirement for such an investment, National Regulatory Authorities (NRAs) desire a clear picture on what to expect, in terms of progress in access competition, when introducing fixed NP in their respective markets. The paper approaches this question by correlating several fixed telephony market indices related to access competition to the degree of success of fixed NP. Relevant analysis based on European Union member states’ data indicates that fixed NP does not significantly contribute to local loop unbundling (LLU) adoption in markets where there are other access technologies available. In these markets, access competition via these other technologies and fixed NP initially achieve similar penetration rates. Consequently, when access competition exceeds a certain threshold and given a reasonable pricing regime then fixed NP is further boosted to include broadband connections based on several broadband technologies/methodologies such as LLU and cable as well as existing narrowband access technologies (e.g. narrowband cable connections). In markets where LLU is the only alternative for access then the rate of Fixed NP adoption is directly correlated with the success of LLU. Consequently, these conclusions are considered within a high-level stepwise approach for NP implementation, which is based on the experience acquired from the respective Greek national project.     

Access regulation, competition, and broadband penetration: An international study

The evolution of broadband penetration has shown substantial differences between OECD countries. This paper empirically investigates to what extent different forms of regulated competition explain these international differences. It distinguishes three modes of competition between broadband internet access providers that result from regulatory policies: (1) inter-platform competition; (2) facilities-based intra-platform competition; and (3) service-based intra-platform competition. In most countries these forms of competition co-exist although their intensity varies from country to country. Intra-platform competition may differ among countries depending on the degree of mandatory access obligations imposed by the regulator on the dominant network firm. Based on a sample of OECD countries, the analysis finds that inter-platform competition has been a main driver of broadband penetration. The two types of intra-platform competition have a considerably smaller effect on the broadband penetration. Linking these findings back to access regulation suggests that the “stepping stone” or “ladder of investment” theories might not provide the justification to impose extensive mandatory access obligations on DSL incumbents.     

Unbundling the incumbent and deployment of high-speed internet: Evidence from France

In this paper, we study the impact of competition on the legacy copper network on the deployment of high-speed broadband. We first develop a theoretical model, which shows that the relation between the number of competitors and investment in a quality-improving technology can be positive if the quality of the new technology is high enough, and is negative otherwise. We test these theoretical predictions using data on broadband deployments in France in more than 36,000 local municipalities. First, using panel data over the period 2011–2014, we estimate a model of entry into local markets by alternative operators using local loop unbundling (LLU). Second, using cross-sectional data for the year 2015, we estimate how the number of LLU entrants impacts the deployment of high-speed broadband with speed of 30 Mbps or more by means of VDSL, cable and fiber technologies, controlling for the endogeneity of LLU entry. We find that a higher number of LLU competitors in a municipality implies lower incentives to deploy and expand coverage of high-speed broadband with speed of 30 Mbps or more.     

The stalemate of cable digital switchover: A study of competition effects and deregulation

This paper addresses the phenomenon of delayed cable digitization in Taiwan and reports the results of a longitudinal analysis, determining that (1) inter-platform competition, primarily from internet protocol television (IPTV), generates a strong and positive impact on the digitization of cable service after it acquires numerous customers; (2) the installed cable base induces economies of scale that increase its digital penetration; (3) the overbuild of the equivalent-size rivalry can increase digital adoption, whereas unequal-sized competition might reversely decrease it; and (4) the monthly flat fee charged to customers does not influence digital adoption. In addition, this paper presents a discussion on the policy instruments derived from econometric results. Although repealing the horizontal integration cap in the cable TV industry could generate economies of scale, doing so may encourage monopolization over several franchises. The efficacy of intra-platform competition is reserved only for certain cases. Combining the results of these analyses reveals that inter-platform competition most effectively stimulates cable operators’ digital conversion. Hence, regulators should create a level playing field among various TV platforms, such as equal programming access and open standards, to ensure a high degree of cable digitization     

Market Power in US Broadband Services

The US residential broadband market is commonly characterized as a duopoly consisting of telephone carriers (digital subscriber lines) and cable TV operators (cable modems). The implication is drawn that market power obtains; this, in turn, drives recommendations for new competition policy remedies. Yet, market power cannot be directly deduced from market shares or price-cost margins. We develop an economic analysis that examines both static and dynamic factors in considering market power, finding that fixed broadband providers do not appear to generate supra-competitive returns. Public policies to regulate broadband providers should be informed by these marketplace conditions.     

The impact on broadband access to the Internet of the dual ownership of telephone and cable networks

In Portugal, until recently, the telecommunications incumbent offered broadband access to the Internet, both through digital subscriber line and cable modem. We estimate the impact on broadband access to the Internet of the structural separation of these two businesses. Using a panel of consumer level data and a random effects mixed logit model, we estimate the price elasticities of demand and the marginal costs of broadband access to the Internet. Based on these estimates, we simulate the effect of structural separation on prices and social welfare. Our estimates indicate that structural separation would cause a substantial welfare increase. These results raise questions about the policy of some countries of allowing the dual ownership of telephone and cable networks.     

Critical factors for the expansion of broadband in developing countries: The case of Peru

Many studies have been made on the diffusion and development of broadband, however there are few published studies on the critical factors for advancing broadband services in developing countries. Thus, the purpose of this paper is to understand and identify the critical success factors for the development of broadband services in a developing country context, using the case of Peru. In this regard, this study uses data collected from interviews with Peruvian telecommunications professionals, policy makers and regional telecommunication experts, which is supplemented by official reports and statistical data to determine the critical success factors for broadband in this country. The four factors derived are; (i) expand the availability of infrastructure, (ii) define a national broadband policy that aligns the interests of stakeholders, (iii) develop effective competition in the broadband market, and (iv) stimulate the demand for broadband services. Through a MACTOR analysis the authors found that the objectives of sharing infrastructure, the further deployment of infrastructure and the development of competition in the market for broadband services are those that generate the most divergence between actors. Additionally, the MACTOR analysis determined that no disagreement existed for the objectives related to demand stimulation. Thus, four proposals are offered for the development of Peruvian broadband. The results are relevant for academics and policy makers interested broadband development in developing countries and for rural areas of developed countries.     

Local competition for telephone services

A policy discussion and overview of the development and scope of local exchange competition in U.S. Telecommunications markets is presented. The primary focus is on access and cable competition. In the future, we will see policies which encourage cable to enter telephone services, telephone companies to develop a video dialtone, and transportation networks which allow interexchange carriers to bypass the access charges of the local network. Regulatory policy needs to manage these competitive changes so that there is parity between the various service providers.     

Strategic choice and broadband divergence in the transition to next generation networks: Evidence from Canada and the U.S.

This article investigates how infrastructure competition among broadband network infrastructure operators in Canada and the U.S. has influenced their incentives to increase fixed broadband connection speeds and invest in next generation fiber-to-the-premises (FTTP) technologies. The evolution of measured broadband speeds since the late 2000s documents growing differences in the incentives of dominant broadband operators to respond to demand for higher speed connectivity by increasing connectivity speeds they deliver to their customers. Dominant network operators in Canada have shown relatively stronger incentives than their counterparts in the U.S. to invest in and increase the capacity of legacy platforms. In the U.S. FTTP deployment incentives have been somewhat stronger, but network operators have been more reluctant to upgrade legacy technologies to deliver higher speeds. Diversity of strategic choices by large operators helps explain increasing regional and local broadband infrastructure gaps within the two countries. A high dividend payout financial strategy and increasing vertical integration appear to enhance the potential for overinvestment and inefficient duplication in legacy platforms by competing infrastructure providers.     

Broadband adoption and availability: Impacts on rural employment during COVID-19

Amidst COVID-19-related stay-at-home orders, the economy moved largely online and broadband internet became more important than ever. This paper explores the relationship between broadband and employment rates during April and May 2020 in rural U.S. counties. We use two broadband dimensions: infrastructure availability rates and household adoption rates. We use a two-stage least squares approach to address endogeneity and control for socioeconomic, demographic, and pandemic-related factors. Results show broadband availability and wired broadband adoption both had significant, positive impacts on the employment rate. Our findings suggest both broadband adoption and availability may be associated with economic benefits in rural America.