Innovation, Investment and Unbundling

38 Pages Posted: 8 Jan 2001

See all articles by Thomas Jorde

Thomas Jorde

University of California, Berkeley - School of Law

J. Gregory Sidak

Criterion Economics, Inc.

David Teece

Institute for Business Innovation


In this Article, we examine the neglected tradeoff between innovation and mandatory unbundling of telecommunications networks. Our analysis is prompted by the Supreme Court's 1999 decision in AT&T Corp. v. Iowa Utilities Board and by the Federal Communications Commission's Second Further Notice of Proposed Rulemaking released later the same year, which address which network elements in the local telecommunications network shall be subject to compulsory sharing among competitors at regulated cost-based rates. Economic analysis indicates that mandatory unbundling at prices computed on the basis of the total element long-run incremental cost of the various network elements belonging to an incumbent local exchange carrier will adversely affect the ILEC's incentives not only to upgrade or maintain existing facilities, but also to invest in new facilities. Mandatory unbundling at TELRIC prices will also encourage competitive local exchange carriers to deviate from the socially optimal level of investment and entry. Finally, the confluence of mandatory unbundling and other FCC policies aggravates the distortion of investment decisions.

JEL Classification: K0, K2, L4, L5, L9, L96

Suggested Citation

Jorde, Thomas M. and Sidak, J. Gregory and Teece, David J., Innovation, Investment and Unbundling. Yale Journal on Regulation, Vol. 17, No. 1, pp. 1-37, Winter 2000 , Available at SSRN: or

Thomas M. Jorde

University of California, Berkeley - School of Law ( email )

Boalt Hall
Office 785 Simon
Berkeley, CA 94720-7200
United States
(510) 642-0340 (Phone)
(510) 642-3856 (Fax)

J. Gregory Sidak (Contact Author)

Criterion Economics, Inc. ( email )

1750 Tysons Boulevard
Suite 1500
McLean, VA 22102
United States
(202) 518-5121 (Phone)


David J. Teece

Institute for Business Innovation ( email )

F402 Haas School of Business, #1930
Berkeley, CA 94720-1930
United States
(510) 642-4041 (Phone)

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