Local loop unbundling for cable

Felix Salmon endorses local loop unbundling for cable, so does Kevin Drum.

My earlier analysis simply was assuming that we will not make this policy shift and then asking how worried we should be about the resulting semi-monopoly power in that market.  If you would like to see the pro-case, here is a UK study (pdf) showing unbundling improves quality.  Here is French evidence for higher penetration, often through quality rather than just price effects.  Here is Tom Hazlett on related issues (pdf) and Vernon Smith is a long-time proponent of related ideas.

I don’t, however, agree with Felix’s presumption that all we need do is refine the current infrastructure, or his claim that there are no other effective forms of competition at current margins.  Penetration rates could be a few percentage points higher, and that is an economic cost from the status quo, but in Felix and some of the other commentators I am seeing a black and white version of a monopoly story that simply does not correspond to the facts.  Furthermore the current monopoly power of cable means that infrastructure will be laid down more quickly next time around, and moving to local loop unbundling would weaken this incentive by confiscating some of the rents from the infrastructure investments of the cable companies.  I probably would make this trade-off, but that further blunts any estimate of the net costs from the U.S. status quo.

Note also that Netflix has turned out to be worth a lot of money as a company, a reality which those who pushed the “cable as extreme monopoly” view denied could happen, out of a belief the cable companies would simply confiscate any Netflix rents.

And here is Peter Huber on how deregulation — yes the dreaded “D word” — can improve cable competitiveness.