Vertical Separation of Telecommunications Networks: Evidence from Five Countries
Robert W. Crandall
Brookings Institution; AEI-Brookings Joint Center for Regulatory Studies
Jeffrey A. Eisenach
American Enterprise Institute
Robert E. Litan
Ewing Marion Kauffman Foundation; AEI-Brookings Joint Center for Regulatory Studies
Federal Communications Law Journal, Forthcoming
The widespread adoption of mandatory unbundling in telecommunications markets has led to growing interest in mandatory “functional separation” i.e., separation of upstream network operations from downstream retail operations. Since 2002, vertical separation has been implemented in five OECD countries: Australia, Italy, New Zealand, Sweden, and the United Kingdom. In 2008, the International Telecommunications Union noted “a tremendous amount of interest” in functional separation around the world; and, in April 2009, the European Parliament held its second reading on a new regulatory framework that embraces functional separation as an “exceptional measure.” While the U.S. does not currently require unbundling of broadband telecommunications networks, at least one influential group is advocating both unbundling and vertical separation for U.S. network operators. In this context, this study examines mandatory vertical separation in telecommunications markets from both a theoretical and an empirical perspective. The theoretical case against vertical separation is very strong, predicting in particular that mandated separation will discourage innovation and investment in new technologies. The empirical evidence tends to confirm these predictions, suggesting that overall, vertical separation is likely to impose significant costs without measurably increasing broadband penetration.
Number of Pages in PDF File: 38
Keywords: telecommunications, unbundling, broadband, technology, innovation
Date posted: September 13, 2009 ; Last revised: April 6, 2012
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