The momentum for network separation: a guide for regulators

Abstract

NGAs (Next Generation Access Networks) are a challenge to regulators and operators insofar as they require large investments, there is significant uncertainty about the ability to recover costs, and the choice of the appropriate regulatory regime is far from consensual. Regulatory authorities might want to seize the moment and reconsider the mandatory vertical separation of telecommunication firms, without jeopardizing incentives to innovation, investment and welfare. We provide a provocative but simple test for the adequacy of network separation as a regulatory remedy. We propose a decision tree procedure with four steps in order to assess whether network separation is an adequate regulatory response: [1] “Is there significant market power in the market for the provision of access services under NGAs?”; [2] “Are there few vertical complementarities between services along the supply chain?”; [3] “Is functional separation a better regulatory tool than any other alternative?”; and [4] “Is structural separation superior to functional separation?”. A positive answer to the first three questions implies that the regulator should consider functional network separation, whilst the fourth is needed for the structural alternative.Telecommunications networks, Functional separation, Structural separation