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With the new proposed telecommunication policy reform the EU Commission encourage Members to look at ‘functional separation’ as a tool to spur competition, this is explained in the FAQ. (the excerpt is provided below).

The separation tool raises questions about the infrastructure gatekeeper discriminating certain content on the network. Fair competition requires non-discrimination.

The opposite interest of functional separation argues that a such implementation will discourage investment in the network, but as stated below this has not been the situation in the UK, on the contrary it has helped investment!

Excerpt of the FAQ

What is functional separation?

Functional separation is an instrument to ensure fair competition leading to freedom of choice for consumers in a telecoms market dominated by one operator. It requires an incumbent operator to separate its network infrastructure from the units offering services using this infrastructure. Although operationally separate business entities are created, overall ownership remains unchanged; functional separation is therefore an instrument that needs to be distinguished from structural separation which is currently being introduced in the energy sector (see IP/07/26, IP/07/29). As telecoms markets are more dynamic, functional separation allows network access to new entrants and the incumbent’s own retail division on the same terms. It gives new entrants a fair chance to build services using the incumbent’s existing infrastructure.

Will the Commission impose functional separation on every operator in the European Union?

No. The Commission proposes to give all national regulators the possibility of imposing functional separation, if they, on the basis of a sound market analysis, deem it necessary to tackle important competition problems, taking due account of the principle of proportionality and of the effect on investments by incumbents and new market entrants. Functional separation should only be used when all other regulatory tools have proved to be inadequate. To be imposed, functional separation requires the approval of the Commission and needs to take into account the effect on investment by the incumbent as well as by new market entrants.

Will functional separation not hold back investment in competitive infrastructures?

No. First of all, the experience from countries that have already introduced functional separation shows that this remedy enhances overall investment in services and in network infrastructures. In the UK, functional separation has spurred a new wave of investment and infrastructure-based market entry as evidenced by the explosion of local loop unbundled lines in UK which has jumped from less than 100,000 in June 2005 to 3.3 million by the end of October 2007. In addition, the EU Telecoms Reform requires a thorough cost-benefit analysis by national regulators before introducing functional separation. They thereby ensure that the incentives to invest for both the largest and smallest operators are preserved. By allowing common ownership of the network and service arms, functional separation will facilitate coordination of investment decisions between the services and network elements. Efficient investment by new market entrants will be supported by the fact that with functional separation, they can rely on non-discriminatory access to all bottlenecks.

Functional separation has been successful in the UK. Should all EU Member States now follow suit?

The Commission believes that functional separation is a useful tool, which in the long run will improve freedom of choice for users in markets where, for structural reasons, competition between different infrastructures fails to evolve. This positive view on functional separation is increasingly shared around the world, with regulators in the UK, New Zealand and Australia already having had concrete experience with it, while the instrument is currently considered by regulators in Sweden[1], Italy, Poland, Ireland and Spain.

However, simply because the remedy will be available does not mean it should always be applied. National regulators will always have to take into account how competitive the markets under their responsibility are. This can vary from country to country. For example, the Dutch national regulator considered that at the moment, functional separation would be inappropriate for The Netherlands, in view of evolving infrastructure competition between DSL and cable.

With the EU Telecoms Reform, the Commission wants to make sure that those regulators that see a need for choosing functional separation do so under a stable legal framework and with the backing of the Commission, using a consistent methodology and taking into account regulatory experience made in other EU markets.”

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