Do UNE Rates Reflect Underlying Costs?

32 Pages Posted: 1 Sep 2008

See all articles by Jeffrey A. Eisenach

Jeffrey A. Eisenach

NERA Economic Consulting; American Enterprise Institute

Janusz R Mrozek

NERA Economic Consulting

Date Written: December 16, 2003


The regulatory regime under which incumbent telephone companies are required to offer portions of their networks to competitors is a joint product of Federal and state authorities. While the regime is extremely complex, it can broadly be described as having two main substantive components: 1) Regulations setting out which elements of the incumbents' networks must be offered (or "unbundled"); and 2) Regulations that set the prices that must be charged for those elements. Under the Telecommunications Act ("the Act"), as implemented, authority for both components of the regulatory regime is shared between the Federal Communications Commission (FCC) and the states, generally acting through state Public Utility Commissions (PUCs).

While the precise division of authority between the FCC and the PUCs is a source of substantial controversy and ongoing litigation, there is general agreement that the policy of mandated access to incumbent networks should be implemented on a nationally consistent basis--i.e., that, regardless of the level at which decisions are made, they should be made on the basis of, and comport with, a single analytical framework. Broadly speaking, it is the FCC's responsibility to establish the framework, and the PUCs' responsibility to implement it.

In this study, we examine state PUCs' implementation of the FCC's rules regarding the pricing of "Unbundled Network Elements" (UNEs), i.e., the portions of the network which the FCC requires be made available to competitors. We find that variations in costs among the states explain only about half of the variation in the rates set by state PUCs. Furthermore, the typical deviation of state-set rates from costs is at least 15% from the levels that would be implied by a systematic approach. These results suggest that the current regime has not resulted in consistent application of the FCC's regulatory framework.

Suggested Citation

Eisenach, Jeffrey A. and Mrozek, Janusz R, Do UNE Rates Reflect Underlying Costs? (December 16, 2003). Available at SSRN: or

Jeffrey A. Eisenach (Contact Author)

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-448-9029 (Phone)
202-466-3605 (Fax)


American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

Janusz R Mrozek

NERA Economic Consulting ( email )

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States

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