What Does Network Element Unbundling Promote?

Unbundling of network elements (either of full loops or parts of local access networks) has been touted as a reasonable way to enhance competition in markets where only one broadband access network dominates. Many will argue it has, in some markets, done so. 

But there also is new thinking that unbundling of network elements, and allowing competitors wholesale access to those network elements, at healthy discounts, has had a downside: namely reducing next generation network investment.

Perhaps oddly, some in the U.S. policy community have advocated adopting unbundling policies prevalent in the European Union, precisely at the point that the EU is moving away from some of the features of such policies, such as the amount of wholesale discounts, for example. 

Some of us might argue the shift in thinking is because new problems emerge in new periods of communications policy. Solutions to older problems might actually be problems in newer periods. 

In essence, that is why new questions are being raised in markets where widespread unbundling policies are seen as having succeeded in promoting competition. It is hard to solve new problems with yesterday's solutions, especially when the older solutions are directly related to the reasons the new problems exist.

Competition remains an issue, but is not the chief issue. The main problem is that the risk of investing lots of money in next generation networks is higher than ever before, because the returns from such investments are smaller and more uncertain that similar investments have been in the past. Investors dislike higher risk and uncertainty. 

The new issues are the ways unbundling and investment are related. U.S. regulators have supported mandatory narrowband service unbundling, but not mandatory broadband access unbundling. 

European policymakers, on the other hand, have applied mandatory wholesale rules to broadband and narrowband services.

The implementation of unbundling requires European regulators to make a challenging decision on access prices, balancing short-term consumer benefits (from low prices) and long-run benefits from investment and innovation, argue Martin H. Thelle and Dr. Bruno Basalisco of 
Copenhagen Economics.

"Several European fixed telecom incumbents have refrained from investing aggressively in next generation access networks due to regulation affecting the business case for 
fiber investments," they say. 

The problem is that the "unbundling approach does not suit the challenge of promoting investment in fiber-based infrastructure," they say.

Unbundling has created retail competition, but has not been effective at creating incentives for investment in next generation networks, said Roslyn Layton of the Center for Communication, Media and Information Technologies, Aalborg University Department of Electronic Systems.