Did Separating Openreach from British Telecom Benefit Consumers?

31 Pages Posted: 11 Oct 2014  

J. Gregory Sidak

Criterion Economics, L.L.C.

Andrew Vassallo

Shippensburg University

Date Written: October 9, 2014

Abstract

In 2005, Ofcom, then telecommunications regulator in the United Kingdom, implemented functional separation of British Telecom plc (BT), separating its wholesale and retail services. BT established a division within the company, Openreach, to provide equal access to its local access network and backhaul products. The tenth anniversary of this regulatory and corporate experiment is an appropriate moment to ask whether functionally separating Openreach from BT benefited consumers. We find that Openreach’s creation generated short-run consumer benefits in the form of lower prices but also led to negative long-run effects, which outweighed the short-term price reduction. Our econometric analysis indicates that prices for broadband and residential fixed-line telephone services are lower than one would expect based on prices in comparable countries. However, telecommunications investment, customer satisfaction, and measures of the United Kingdom’s global competitiveness in telecommunications have also fallen. In particular, the United Kingdom’s investment in next-generation networks is lagging compared with the rest of the world.

JEL Classification: L22, L43, L51, L96, N74

Suggested Citation

Sidak, J. Gregory and Vassallo, Andrew, Did Separating Openreach from British Telecom Benefit Consumers? (October 9, 2014). World Competition: Law and Economics Review, Vol. 38, No. 1, 2015 Forthcoming. Available at SSRN: https://ssrn.com/abstract=2507463 or http://dx.doi.org/10.2139/ssrn.2507463

J. Gregory Sidak (Contact Author)

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

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

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

Andrew Vassallo

Shippensburg University ( email )

Shippensburg, PA 17257
United States

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