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Vertical Separation of Telecommunications Networks: Evidence from Five Countries

38 Pages Posted: 13 Sep 2009 Last revised: 6 Apr 2012

Robert W. Crandall

Brookings Institution; AEI-Brookings Joint Center for Regulatory Studies

Jeffrey A. Eisenach

American Enterprise Institute; NERA Economic Consulting

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C.

Date Written: September 2009

Abstract

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.

Keywords: telecommunications, unbundling, broadband, technology, innovation

Suggested Citation

Crandall, Robert W. and Eisenach, Jeffrey A. and Litan, Robert E., Vertical Separation of Telecommunications Networks: Evidence from Five Countries (September 2009). Federal Communications Law Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1471960

Robert Crandall

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6291 (Phone)
202-797-6181 (Fax)

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

Jeffrey Eisenach (Contact Author)

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-466-3510 (Phone)
202-466-3605 (Fax)

HOME PAGE: http://www.nera.com

Robert Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C. ( email )

1777 F Street, NW
Washington, DC 20006
United States

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