Local loop unbundling

24 Feb 2014

Local loop unbundling is common in Europe and is a way to ensure competition in the retail ISP market. It’s also a way to sidestep many of the issues surrounding net neutrality: if one ISP does something distasteful, you can just switch to another one.

The basic idea behind LLU is that you don’t have to buy Internet access from the same company that owns the wire (copper pair designed for phones or coaxial cable designed for television). For example, I might get Internet access through an independent ISP. They would then pay a monthly fee to Time Warner Cable, which owns the physical cable, and have some equipment in a TWC facility. My ISP would have a backbone that includes a connection to the TWC facility. If I am unsatisfied with my ISP, I could switch to a different one that services my neighborhood and has a deal with TWC.

TWC still has a monopoly on access to the cable (the local loop), so their rates might have to be regulated. This regulation is difficult in some countries where the local loop owner also operates a retail ISP business, because TWC might price their own Internet access offering too low compared to competitors because their own cost is much lower. You then need to come up with some scheme to come up with and mandate the “right” price for the local loop. An alternative could be to ban TWC from offering retail Internet access, and let them charge ISPs whatever they want.

If you think that monopoly rents are too low in an LLU scenario, you could set wholesale loop rates at a very high level, or even not regulate them at all (and ban the provider from providing retail services).

LLU can operate at different levels in the network. One method is to have the physical wire from my home terminate in equipment owned by my ISP. If I change ISPs, the other end of the wire would have to be physically or electrically switched to a different ISP’s equipment. That can become impractical as technology changes; for example, with AT&T U-verse, your wire terminates in a box on the street less than a few blocks away, and it’s not possible for lots of ISPs to all be present in every box. Instead, you would do the unbundling at different levels; bitstream access is a common way to do it for DSL type connections.

Mandating LLU for cable Internet access in the US would be a huge step and it’s not clear that the FCC has or wants the authority. It might also seem like an overreaction to what is, in the short term, a relatively minor problem. But if LLU had been implemented in the US a decade or more ago, we probably wouldn’t be in this mess.

The concept of LLU doesn’t just apply to telecommunications. In the US, FedEx and UPS operate shipping services where they move your package most of its way across the country, but then hand off to USPS for the last mile. SmartPost and MI happen to be among the crappiest shipping methods known to man, but that’s only weakly related to the fact that they hand off to USPS.