Do Unbundling Policies Discourage CLEC Facilities-Based Investment?

Abstract

An expanding economics literature has examined the theoretical linkages between mandatory unbundling in the telecommunications sector and the incentives to invest in facilities by both incumbent local carriers and competitive carriers. Recent empirical evidence that substantiates the theory has emerged. That literature documents CLECs' reluctance to make facilities-based investments instead of availing themselves of incumbents' UNEs at low regulated prices that are based on total element long-run incremental costs (TELRIC). By examining the variation in facilities-based investment in loops across U.S. states, we find that an increase in the UNE loop rate increases CLEC facilities based lines for any reasonable own-price elasticity of demand for CLEC service.

Keywords: telecommunications, investment, unbundling, CLEC, UNE-P

JEL Classification: L0, L5, L96