The Failure Of Competitive Entry Into Fixed-Line Telecommunications: Who Is At Fault?

Between 1998 and 2003, dozens of companies entered newly liberalized telecommunications markets in OECD countries. In Europe and North America, most of the entrants that attempted to use incumbents' “unbundled local loops,” at regulated wholesale prices, to offer narrowband services—essentially “plain old telephone service”—have failed. Even though Europe, the United States and Canada liberalized at different times and with somewhat different policies, excessive entry occurred in each region with too many players chasing an illusive pot of revenue with poorly designed business plans. On the other hand, the use of unbundled or shared local loops for entry into broadband services may be more of a winning strategy because it allows the entrant to compete for customers by offering new services. This appears to be the emerging broadband strategy in Europe of large ISPs owned by incumbent telecommunication companies in other countries (for example, France Telecom's Wanadoo) and in Japan. However, such entry has not worked in the United States, where new companies, such as Covad, have failed to develop profitable operations.