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 and over time, we find that facilities-based line growth relative to UNE growth
was faster in states where the cost of UNEs was higher relative to the cost of facilities-based
investment.

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