Unbundling broadband to promote competition: A “fix that fails”

[Commentary] Recently, Canada adopted regulations forcing fiber network operators to allow their competitors to resell services provided by the operators over their own infrastructures – a practice known as “unbundling.” The regulations are intended to increase competition in retail ISP markets, bringing benefits to consumers as prices fall and different services are bundled in with the connection. A simple thought experiment shows why this is rarely the actual outcome.

The problem is that the policy fails. Unbundling is doomed because it distorts the incentives both network operators and their competitors face when it comes to investing in network development. The only way to avoid such market distortions is if the regulator could set the access price to perfectly reflect all costs and risks involved in owning network infrastructure; an impossible exercise as not even regulators can foresee the technological directions that these fast-moving markets with long-lived investments will take.

[Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Business School, Victoria University of Wellington, New Zealand]