Is Mandatory Unbundling the Key to Increasing Broadband Penetration in Mexico? A Survey of International Evidence

Abstract:     
We examine empirically the proposition that mandatory unbundling is the key to increasing broadband penetration in Mexico. We begin by reviewing the empirical economic literature on the relationship between mandatory unbundling and two measures of economic performance: (1) broadband penetration and (2) investment by entrants and incumbent network owners. We explain why a policy that aims to maximize broadband penetration might be inconsistent with maximizing static and dynamic efficiency. Next, we present new empirical results on the effect of mandatory unbundling on investment by entrants and incumbents. We find that, despite the best efforts of the regulators, no EU country has experienced the promised transition from resale to bitstream to local loop unbundling (LLU). Countries with strong unbundling policies, such as those in the EU, have much lower incumbent network investment than countries that have much less aggressive wholesale unbundling policies, such as Canada and the United States. We conclude with alternative policy recommendations for stimulating broadband penetration in Mexico. Because access to computers is the binding constraint on broadband penetration - only 20 percent of homes own a computer - we propose that Mexico subsidize the price of computers to stimulate broadband adoption.

Keywords: Broadband Penetration, Unbundling

Working Paper Series