Reding Floats Structural Separation of Dominant Telcos
EC Information Society & Media Comr. Viviane Reding is eyeing a new way to approach recalcitrant dominant telcos. In a little-publicized speech this week to the European Government Business Relations Council, Reding said she’s eyeing not only functional, but also structural, separation when incumbents fail to give rivals adequate access to their networks. Network operators and new entrants reacted with skepticism to the concept.
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The EC is nearing the end of an extensive review of its e-communications regulatory framework on ways to make all 27 EU national competition remedies consistent. One option is functional separation -- that is, creating an independent division within the telco, like British Telecom’s Openreach, required to treat competitors as it does subsidiaries with respect to network access.
The regulatory framework offers many tools that could be used to push equality of network access, but regulators “are still confronted with the devils of detail, by delays and denials by incumbents which slow competition,” Reding said this week. Regulators should be able to order legal separation of network assets from service layers, she said. Functional separation isn’t divestiture, but would create a “clear dividing line” between the company arm dealing with the network and the part competing with new entrants using the network, she said.
But full structural separation shouldn’t “be excluded” as an e-communication market option, she said: “For dominant companies that wish to reduce the intensity of regulation on electronic communications markets, full structural separation could be envisaged as a voluntary price to pay for reducing ex ante [preemptive] regulation.”
The idea of melding functional and structural elements in competition remedies is new, her spokesman said Thurs. The former would be imposed by national regulators where appropriate, with EC authorization, he said. Under the revised regulatory framework, operators in anticompetitive markets could choose between “regulated functional separation and voluntary structural separation” leading ultimately to less preemptive regulation, he said.
Reding also has suggested giving the EC more power over imposing remedies or shifting control of telecom regulation to the European Regulators Group (ERG) (CD Feb 28 p10). Whichever occurs, her spokesman said, functional separation or accepting country structural separation means national regulators must get authorization at the European level (from the EC or the ERG).
Incumbents oppose both functional and structural separation, a spokesman for the European Telecom Network Operators’ Assn. (ETNO) said: “Structural remedies [which include both alternatives] are not adapted to highly competitive and dynamic markets where new technological developments will bring even more competition by the time the new directives enter into force.” Any separation would discourage investment in next-generation networks, he said; it should be a business decision, not a rule.
Among new entrants, functional separation is the regulatory tool of choice, said Ilsa Godlovitch, European Competitive Telecom Assn. regulatory affairs head. Done effectively, functional separation could “make regulators’ job of enforcing the existing framework easier, create more certainty for all players in the market and speed up the process of bringing the benefits of competition to customers,” she said.
But ECTA members aren’t so sure structural separation would allow deregulation “to the extent perhaps suggested” by Reding, Godlovitch said: “The bottleneck assets would still be held by a particular company, and wherever you have entrenched dominance, there remains a need to make sure it’s not abused.”