Smoke and mirrors on structural separation

Stuart Corner
Tuesday, 27 May 2008 11:18

Opinion and Analysis

Optus has released a report, commissioned from the Competition Economists Group (CEG-Asia Pacific) to push its claim that Telstra should be structurally separated, but it is a document of little substance.

CEG was asked to provide "a high-level report on the economic costs and benefits of structural separation in the specific context of the deployment of a national broadband network (NBN)." In particular, "to consider the economic consequences of a model of separation in which the owner of the NBN, including the local loops, digital subscriber line (DSL) and backhaul equipment is separated from other network and retail activities."

It lists as its "key findings":

- Without structural separation, Telstra will have very powerful incentives to damage competition in downstream markets that rely on access services provided by the NBN. In fact, regulation of access prices without structural separation may increase the incentives to damage competition in downstream markets;

- These incentives are unchanged by accounting or operational separation regimes;

- Operational separation is likely to reduce the benefits of vertical integration without significantly deterring anti-competitive conduct. Effective operational separation is likely to mean that regulation will creep from the monopoly part of the network to potentially competitive areas;

- International surveys suggest that operational separation has not worked as some had hoped. There are international precedents for structural separation in the telecommunications industry in the context of an NBN. CONTINUED