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A Consumer-Welfare Approach to the Mandatory Unbundling of Telecommunications Networks

89 Pages Posted: 6 Mar 2000 Last revised: 2 Nov 2009

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

J. Gregory Sidak

Criterion Economics, L.L.C.

Date Written: 1999

Abstract

In this Article, Professors Hausman and Sidak propose a consumer-welfare model for the mandatory unbundling of telecommunications networks. Their approach, responsive to both the Supreme Court's 1999 decision in AT&T Corp. v. Iowa Utilities Board and the Federal Communications Commission's Second Further Notice of Proposed Rulemaking later the same year, reconciles the necessary and impair standards of Statute 251(d)(2) of the Telecommunications Act with the economic analysis of antitrust law. The essential facilities doctrine in antitrust law provides four necessary, but not sufficient, conditions for finding impairment. The authors add a fifth condition, responsive to the explicit text of Statute 251(d)(2), which addresses whether an incumbent local exchange carrier could exercise market power over end-users by restricting competitors' access to a requested telecommunications network element in a particular geographical market. The authors also recommend that necessary be interpreted to mean that competition in end-user services would be impossible unless the requested element were unbundled at a cost-based regulated price. This heightened standard, they argue, will protect the economic incentives to create the intellectual property embodied in elements that are proprietary in nature. The authors' proposed interpretation of Statute 251(d)(2) focuses on the effectiveness of competition in the end-user services market, rather than on the ability of a particular competitor to earn profits. Thus, the test adopts consumer welfare, rather than competitor welfare, as its touchstone.

JEL Classification: L40, L96

Suggested Citation

Hausman, Jerry A. and Sidak, J. Gregory, A Consumer-Welfare Approach to the Mandatory Unbundling of Telecommunications Networks (1999). Yale Law Journal, Vol. 109, No. 3, pp. 417-505, December 1999. Available at SSRN: https://ssrn.com/abstract=205670 or http://dx.doi.org/10.2139/ssrn.205670

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

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