Interim Pricing of Local Loop Unbundling in Ireland: Epilogue

In an earlier article, we presented a case study of local loop unbundling (LLU) in the Republic of Ireland in 2001. We explained how the predecessor regulatory body to the Irish Commission for Communications Regulation (Comreg) could select the least arbitrary interim access rate. This article is an epilogue to the unfolding LLU experiment in Ireland. We assess the approach advocated by the Industry Advisory Group (IAG), which was appointed by Comreg to resolve the access-pricing dispute between the incumbent, eircom, and the regulator. The IAG does not provide factual support for its assertions that the low digital subscriber line (DSL) penetration and subscription rates in Ireland result from market failure – that is, that eircom is restricting supply of DSL service. Nor does the IAG provide factual support for its presumption that DSL service represents a distinct product market under standard tools for competitive analysis. Assuming, counterfactually, that the factual basis for such regulatory intervention exists, we articulate the problem confronting Comreg: to estimate the ratio of a variable for which Comreg believes it has very good information (eircom’s long-run average incremental cost, or “LRAIC”). The IAG’s solution cannot inform Comreg of this relationship. The IAG suggests that, after arbitrarily excluding the three countries with the highest LRAICs, eircom should make its unbundled loops available at a price within the range of the remaining LRAICs in the truncated sample. A more principled approach would be to estimate the ratio of historical costs to LRAIC from other countries and then to apply that ratio to eircom’s historical costs. Alternatively, one would estimate in a regression model the relationship between LRAIC and the economic and demographic factors that influence LRAIC.

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