LOCAL LOOP UNBUNDLING : CHALLENGES AND ALTERNATIVES

Presented by:Purva Adke

Chandan BhagatRohit Shetye

Kedar Raje

AGENDA

Overview of Local loop unbundling and its necessity

Projected benefits for the customers Regulatory and Policy Objectives for Local Loop

Unbundling Challenges and Issues in implementing LLU Implications of Local Loop Unbundling Alternatives to Local Loop Unbundling Conclusion

Local Loop Unbundling

Local loop unbundling (LLU or LLUB) is the regulatory process of allowing multiple telecommunications operators to use connections from the telephone exchange's central office to the customer's premises.

The physical wire connection between customer and company is known as a "local loop," and it is owned by the incumbent local exchange carrier (also referred to as the "ILEC," "local exchange,"

Why is Local Loop Unbundling Required?

The incumbent local operator operates as a monopoly in the telecom industry and acts as a barrier to new entrants.

The new entrants do not have sufficient finances to build up an entire network and hence, have to rely on the incumbent’s infrastructure to enter the market and provide services to the end user.

Projected Benefits of LLU to customers

Operators will provide good quality at competitive prices

Emergence of new technologiesCustomers will get more choiceDissolve monopoly

Regulatory and Policy Objectives for LLU

Why A Regulatory Authority is Required ?

LLU service & technical descriptions

Frequency plan and quality of service measures

Defining Collocation space and facilities

Costing and tariffs

Addressing Commercial issues and disputes

Federal Communications Commission (FCC)

Telecommunications Act of 1996◦Title I, "Telecommunications Service" ◦Title II, "Broadcast Services" ◦Title III, "Cable Services◦Title IV, "Regulatory Reform" ◦Title V, "Obscenity and Violence" ◦Title VI, "Effect on Other Laws" ◦Title VII, "Miscellaneous Provisions" 

Challenges & Issues Faced by Regulator

Regulating a market that is changing very rapidly

Regulating without stifling any type of innovation, and

Without improperly disadvantaging any competitor.

Implications of LLU

Implications of LLU

OpportunismEconomic dependencyTechnical difficultiesCosting problemsRegulatory Uncertainties

Opportunism

Competitors will be involved in hiding and distorting information

Incumbent will have stronger incentives to behave opportunistically

New entrants will use regulatory threats against the incumbent to gain better performance

Opportunism is the dominant strategy of both the new entrant and the incumbent

Economic Dependency

LLU Operators (new entrants) heavily rely on the incumbent to provide continuous supply of low-priced loops and related facilities

There are transaction hazards involved like hold-ups and margin squeezing

Technical Difficulties

A new entrant might ask the incumbent for network information but the incumbent will require additional information from the new entrant to plan its network design

Appropriate management of problems such as interference at high frequencies is an issue due to the contractual nature of some LLU options

Costing Problems

No correct costing rule exists for fixed costs unaffected by operations

There is always a dispute between the incumbent and the new entrants regarding the regulatory costs involved in the provided services

Competition may lead to destructive price wars between the incumbent and the new entrant

Regulatory Uncertainties

Regulators hesitate to disclose their commercially sensitive information to new entrants

Incumbents have to sign service level agreements with new entrants

The more regulatory the LLU, less is the incentive for incumbents to open their network to access by new entrants

Alternatives to Local Loop Unbundling

Alternatives to Local Loop Unbundling

Local ResaleLocal InterconnectLocal Loop Infrastructure

Local Resale

Network operator provides wholesale services to the service provider and the service provider sells that service on to the customer

Products are priced on the basis of a discount on the retail tariff, with the level of discount reflecting the proportion of costs avoided by the incumbent

Local Interconnect

An entrant operates its own local switch and interconnects on the network side of the incumbent’s local switch.

Prices for local interconnect are typically regulated on the basis of the network operator’s costs plus a reasonable rate of return.

Local Loop Infrastructure

The entrant lays its own transmission facilities between the local switch and its customers.

Entrant is not required to use any other operator’s facilities to provide local services.

Conclusion

Without appropriate safeguards, Local Loop Unbundling will be an unviable business model

LLU does offer benefits to the end users but also faces regulatory issues and other challenges

Alternative technologies which are sustainable in the long run should be looked at

References

http://mora.rente.nhh.no/conferences/TCEWorkshop2003/papers/Ulset_Spiller.pdf

http://www.oecd.org/dataoecd/25/24/6869228.pdf

http://encyclopedia.jrank.org/articles/pages/6657/Local-Loop-Unbundling.html

http://link.wits.ac.za/papers/LINK.pdfhttp://www.cdoyle.com/papers/llurisk.pdfhttp://www.itu.int/ITU-D/hrd/tc/ec ecowas/DOCS/E

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