Just what do you mean by structural separation?

Stuart Corner
Thursday, 12 June 2008 14:05

Opinion and Analysis

Yes, and half the fear of the bogeyman is that he is never defined but remains a shadowy malevolence ready to be invoked when needed. And Warren prefers to leave it this way, he does not spell out exactly what form of structural separation he is talking about. He says: "Those who call for structural separation therefore need to be very clear on the problem they are seeking to remedy. It appears that a number of critics base their demands for structural separation on the mere fact that Telstra is vertically integrated."

Some may, but others have spelt out the problem very clearly, even if they have not defined to solution as clearly. Thus the recent Optus commissioned report from CEG said: "In particular we have been asked 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."

In CEG's parlance what has been done in the UK and New Zealand is not structural separation, because there has been no change in shareholding over network assets, only forms of operational separation, and the report claims these have not worked and indeed are likely to be counter-productive because they are "likely to reduce the benefits of vertical integration without significantly deterring anti-competitive conduct."

This article on Telstra's NWAT web site also makes it clear that none of the three regimes it cites - BT, New Zealand and Ireland have gone to full structural separation, all have operation separation regimes.

The lack of any real-world structural separation has not stopped McGauchie claiming that "Anyone who bothers to take even a cursory glance will see that around the world structural separation has only led to increased costs, less investment, less innovation and bad outcomes for consumers."

However, as one commentator on the NWAT article pointed out, trying to use case studies of operational separation to argue against structural separation is not necessarily valid: "Imagine if Telstra had split its network off into a new company...and each Telstra shareholder received an equal share in the new company. Certainly what was left of Telstra would either sink or swim, but the new broadband network would be mostly built by now with little interference from the ACCC. There would certainly be plenty of upside for the shares of the new company as a wholesale provider to all carriers."