Mandatory Unbundling, UNE-P, and the Cost of Equity: Does TELRIC Pricing Increase Risk for Incumbent Local Exchange Carriers?

Abstract

The Telecommunications Act of 1996 sought to advance competition in the market for local exchange service by promoting facilities-based investment. In implementing the new legislation, the Federal Communications Commission ("FCC") stressed the importance of preserving the investment incentives of both the incumbent local exchange carriers ("ILECs") and the competitive local exchange carriers ("CLECs"). However, economic research has explained that forcing an ILEC to share its network with a competitor at total long-run incremental cost ("TELRIC") will deter it from investing in its network. Thomas M. Jorde, J. Gregory Sidak, and David J. Teece explained in the Yale Journal on Regulation that mandatory unbundling harms ILEC investment because it increases the ILEC's cost of equity.