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How Nations Promote Real Broadband Competition

Local loop unbundling -- when it's implemented correctly -- is a proven method to promote and enhance competition, broadband penetration and economic welfare, according to the latest market study by Pyramid Research.

Governments of developed and emerging countries have promoted the telecom sector by implementing public policies, such as local loop unbundling (LLU) to encourage service penetration, improve the competitive environment and increase their portfolio of services at affordable prices, notes Jose Manuel Mercado, analyst at Pyramid Research.

However, when privatization of the local loop happens, it's rarely accompanied by appropriate public policies and regulations to encourage the new private company to invest in infrastructure, as was agreed and expected.

Pyramid says that once the new company owned the local loop, without any competition to apply pressure, it typically didn't invest in the infrastructure at desired levels. Instead, the focus was more typically on short-term profit.

"Competition among operators is what has driven most infrastructure investment; through local loop unbundling, a liberalized market will see services being offered at affordable prices and coverage improving," Mercado explains. "The competitive behavior promoted by unbundling will put all competitors on level ground."

However, LLU is not a sufficient condition on its own for achieving higher penetration rates. The economic situation of each country, literacy level, and income distribution, as well as other economic conditions affect the development of the telecommunications sector -- but, LLU is a prerequisite for success.

Furthermore, accrding to Pyramid's assessment, price and cost adjustment is crucial for the entry of new telecom competitors, as part of rolling out LLU.

Some progressive nations, such as Chile, are moving forward with policies that totally separate incumbent service provider wholesale and retail operations, which is yet one more proven approach to meaningful telecom infrastructure investment progress.

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