An impact of local loop unbundling on investment in broadband networks

서지정보

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· 저자명 : 유병민, 최용제

초록

There in an ongoing debate on whether the local loop unbundling (LLU) would provide the incentives for entrants to invest in broadband networks. Among the existing empirical studies, there does not seem to be consensus on the efficacy of intra-platform competition to promote the diffusion of broadband networks. In addition, the previous studies we reviewed have some limitations as a test for the so called stepping stone hypothesis (SSH). First, the SSH is a dynamic issue and requires analysis of data over a long period of time, but previous studies analyzed a relatively short period after the introduction of LLU. Second, some of the previous studies used static models, thus the dynamic nature of the SSH has not been properly addressed. Finally, analysis of changes in network investment is a key factor for the study of the SSH, but the majority of existing studies did not use variables that accurately reflect the level of investment.
This paper implements an analysis to test for the SSH, overcoming the limitations of the previous studies: 1) we employ facility-based penetration rate as a dependent variable that captures actual investment of firms and 2) address dynamic nature of SSH with relatively recent dataset, dividing the whole period into first and second periods. If the SSH holds, the LLU regulation would lead entrants to build their own facilities in the long-run and result in inter-platform competition, which is the most effective mode of competition to enhance broadband penetration. Otherwise, a full-blown inter-platform competition led by inter-platform competition is unlikely and the increase in broadband penetration will be limited.
Our analysis reveals that inter-platform competition is the main driver of facility-based broadband penetration, confirming the existing findings. On the other hand, LLU regulation focusing on facility-based intra-platform competition does not provide sufficient incentives both for incumbents or entrants to make investment in network facilities in the first or the second period. This counters to the SSH, indicating that the LLU regulation in the form of facility-based intra-platform competition does not perform properly as it is expected to. Specifically, from the perspective of entrants, the gap between retail and wholesale charges as a result of LLU regulation makes the entrants to enjoy a risk-free arbitrage and reluctant to build their own networks (Valletti, 2003).
Moreover, it is shown that facilitating the service-based intra-platform competition is likely to decrease the penetration rate of the incumbent in the first period, while entrants are not affected. For a possible explanation, the entrants simply reselling the incumbent’s services take away the profit from an incumbent. The incumbent, as a result, may not be sufficiently compensated for the risk and the cost it bears for deploying networks, which eventually reduces its incentive to invest. In the second period, entrants as well as incumbents seem to reduce their investment in network facilities when service-based intra-platform competition intensifies.
Jointly considering the overall results we can hardly find any significant evidence to support the SSH. Our results rather suggest that service-based intra-platform competition might have negative effects for incumbents and entrants to reduce investment in networks. Based on this result, we do not recommend that introduction of service-based or facility-based intra-platform competition might be an effective policy for the purpose of facilitating network investment. Policies that can facilitate inter-platform competition must be implemented to promote broadband diffusion.
It is a future research agenda to extend the dataset to cover developing countries where broadband penetration rate is considerably low. There are, to a certain extent, differences between EU and developing countries in terms of financial and broadband market conditions and government policies. Investigating different groups of countries may yield additional implications.

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