Functional separation - a way forward

Given developments in New Zealand with Telecom agreeing to a three-way split between network, wholesale and retail units, ATUG was interested when a discussion paper by INTUG director Nick White arrived, outlining the issues facing business over the coming decade: the drivers for success, the role of high-quality connectivity, the importance of competitive provision of access services and the use of functional separation as a tool to achieve these outcomes.

The European Union is well advanced in a consultation on their Communications Framework with the Commissioner Vivienne Reading recommending for consideration the additional remedy of 'functional separation' for regulators to apply.

In NZ, the Communications Minister David Cunliffe is reported in Comms Day as saying that the operational separation will increase competition and investment.

In Australia, the Expert Taskgroup's guidelines use the term 'open access':

"The Expert Taskforce process provides an opportunity for interested parties to lodge proposals for the roll-out, on a commercial basis, of new open access high-speed broadband network infrastructure in capital cities and major regional centres."

The Labor policy New Directions for Communications outlines plans for broadband and also makes reference to open access:

"A prerequisite for all proposals made under this process is that they submit to providing genuine open access to bottleneck fibre to the node infrastructure. Open access under labor would require 'equivalence of access charges' and the capacity for access seekers to differentiate their products by allowing customisation of speeds and services. Prices would be set at a level to ensure a return could be made on the investment.

INTUG director Nick White discusses the needs of business users of telecommunications for efficient competitive supply markets which operate across national borders, enabling them to improve productivity. White argues that the dominance of ex-monopoly operators in national access markets prevents the competitive provision of transborder telecommunications services for fixed applications and varying quality of service, which deter businesses from investing in innovative new business processes and applications.

This stifles productivity and growth. The cause is a lack of supply, not a lack of demand. White believes effective competition requires functional separation of the dominant operator's infrastructure and access service provision from its own wholesale and retail operations. This will grow the size of the market, stimulate competition, facilitate international virtual network operators in fixed and mobile services, and release innovation and investment within the dominant operator's own businesses.

Accounting separation is inadequate, due to lack of transparency and high levels of subjectivity in cost allocation. Functional separation has been shown to work and is being actively pursued elsewhere. Complete structural separation may be difficult in some situations, but functional separation will produce independent behaviour and eliminate real or perceived bias.

These discussions and ideas will be of interest in the major telecommunications competition policy review slated for 2009 in Australia. ATUG will be finishing its own work on the Future Forums soon, with discussion centred on Investment and Competition and finally a New Policy Model for Telecommunications. Members should see ATUG This Week for further information about dates and venues for the Future Forums.

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