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Global Telecom Insider / Vol. 2, No 4, Edition 7 - How Operators Can Benefit from Local Loop Unbundling Done Right
Pyramid Research, Inc., Aug 2010, Pages: 18
Local loop unbundling - if implemented correctly - will promote and enhance competition, broadband penetration, and economic welfare in emerging markets lacking this reform, according to a new report.
How Operators Can Benefit from Local Loop Unbundling Done Right examines the impact on private investment, service penetration, and prices that could result when the privatization process of the telecom sector lacks a regulatory framework promoting competition among the participants. It also examines how LLU could be used to mitigate those unequal conditions. Finally, case studies of three countries - the U.S., U.K., and India - look at the strategic challenges and difficulties involved in reform implementation.
Governments of developed and emerging countries have promoted the telecom sector by implementing public policies, such as local loop unbundling (LLU) to encourage service penetration, improve the competitive environment and increase their portfolio of services at prices affordable to the population, notes Jose Manuel Mercado, analyst at Pyramid Research. 'Once privatization of the local loop took place, it was not always accompanied by appropriate public policies and regulations to encourage the new private company to invest in infrastructure, as expected,' he says. 'Even though the new company owned the local loop, without any competition to apply pressure, it did not invest in the infrastructure at desired levels.'
'Competition among operators is what has driven most infrastructure investment; through local loop unbundling, a liberalized market will see services being offered at affordable prices and coverage improving,' Mercado explains. 'The competitive behavior promoted by unbundling will put all competitors on level ground.'
However, LLU is not a sufficient condition on its own for achieving higher penetration rates; the economic situation of each country, literacy level, and income distribution, as well as other economic conditions affect the development of the telecommunications sector, but LLU is a prerequisite for success. Furthermore, price and cost adjustment is crucial for the entry of new telecom competitors as part of rolling out LLU. 'If this process is not regulated before implementing LLU, entrants could face a price war and would not be able to offer their services above costs, leaving them out of the market,' says Mercado.
Key findings
- The privatization policies of the telecom sector resulted in the creation of private companies owning the local loop without any competition to enhance its development. It did not result in increased levels of investment needed to advance the sector.
- Local loop unbundling’s main objective is to provide equal infrastructure conditions for operators. This equality will increase competition in the broadband sector, allowing for the entry of new competitors into the local market. As noted, this type of measure increases the level of services and lowers prices to end users.
- Alternative access technologies, such as wireless local loop, have proven uncompetitive and impractical. At the moment, these technologies have not matured sufficiently to be commercially viable to compete with wired access technologies. Thus LLU remains vital.
- LLU is not in itself a sufficient condition for achieving higher penetration rates. The specific market’s economic situation, as well as other economic conditions, affects the development of the telecommunications sector, but LLU is a prerequisite for success.
- Price and cost adjustments are crucial for the entry of new competitors. If this process was not regulated before implementation, entrants wanting to take advantage of the unbundling could face a price war, which would leave them out of the market.
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