A Too Short Ladder? Broadband Investments and Local Loop Unbundling in EU Countries

This paper means to add to empirical research on the impact of local loop unbundling (LLU) on broadband networks. In particular, it focuses on broadband investment made by entrants. Starting from late Nineties telecommunications incumbents of several European Union countries have been required to unbundle their local loops. While there is a general consensus on the negative or null impact of unbundling obligations on incumbents’ investment, research on the relationship between LLU and new entrants’ investment, albeit growing, has not yet reached a coherent body of results. We have tested two propositions. First, service-based entry, which relies on LLU, paves the way to new entrants’ subsequent investment in broadband systems (i.e. ladder of investment theory). Second, the price charged for local loop should increase over time in order to have a significant investment in alternative platforms (i.e. the transitory entry assistance theory). The empirical analysis is carried out on a sample of 27 European countries (2002-2009 period). We have collected country-level data on broadband lines and LLU policy indicators. Our results suggest that service-based entry does not lead entrants to a subsequent facility-based entry, casting some doubts on the ladder of investment theory. The “short ladder” version of the theory has received confirmation instead. At the same time, an increasing price of local loop is not found to stimulate the entrants’ investment in alternative broadband networks