Lessons from the Telecom Wars (Mini-Conference September 28, 2006). Robert Crandall, Brookings Institution.
From “Opening the Monopoly Bottleneck” to the “Stepping Stone Hypothesis”: In many countries, the bottleneck was never a “monopoly” bottleneck, just an expensive one. Unbundling and network sharing are regulatory interventions of last resort where there is not a second, third or fourth network providing access to the same households or establishments. These network sharing arrangements were initially thought to be temporary –i.e., ”stepping stones” –which could be abandoned once entrants built their own facilities. Today, network sharing appears to be a permanent fixture in the EU, Japan, and Australia. Has the Policy Worked? Are the Net Benefits Positive? Presumably, the objective is to accelerate competition, which, in turn, should reduce prices and/or provide innovative new services. If one believes the “stepping stone” hypothesis, the policy should also induce investment by entrants in new facilities as they step across the stones, climb the “ladder of investment”, or whatever… But any regulatory intervention of this magnitude has offsetting costs: it reduces the incentives of the regulated (ILEC) firm to invest, innovate, and deploy its own new services. So, what is the evidence on these matters?