Things fall apart, but will the centre hold?

Citation

Blackman, C. (2002), "Things fall apart, but will the centre hold?", info, Vol. 4 No. 6. https://doi.org/10.1108/info.2002.27204faa.001

Things fall apart, but will the centre hold?

Things fall apart, but will the centre hold?

Some see the financial meltdown in the telecommunications industry as the inevitable consequence of the attempt to introduce affordable, end-user controlled broadband networks through centrally-controlled, scarcity-driven, and now debt-ridden, legacy telecommunications structures[1]. The current situation highlights more than ever the bottleneck of the local loop and its control by incumbent telecommunications operators. It is bringing to the fore again the question of whether the local loop is a natural monopoly, whether accounting separation alone is sufficient to ensure a competitive environment or whether structural separation is necessary.

Structural separation means slightly different things to different people and is variously used to describe separating the infrastructure from content, the network from services, or wholesale from retail – essentially this is about where the lines should be drawn between the competitive and non-competitive parts of the system. The basic concept sounds reasonable enough and there are enough precedents for breaking up vertically integrated monopolies (think, roads, railways or gas), but does it make sense in telecoms?

There are those who believe that structural separation of the competitive and the non-competitive elements would hasten regulatory withdrawal and bring about the benefits of competition. Chief among these is Lord Currie, the new Chairman of the Office of Communications (Ofcom). But Martin Cave, who conducted an investigation for Oftel, came to the conclusion that the benefits do not outweigh the costs. In this issue, Richard Cadman and Helen Carrier take up the argument and respond to the six questions that Cave set out in his recent article in info (Cave, 2002). They find that "Professor Cave's clear and unambiguous conclusion is not, therefore, supported by the arguments he sets out in his paper".

Cadman and Carrier propose an alternative approach designed to answer what they see as the single most important question: would structural separation lead to increased innovation in the telecommunications sector which would benefit customers and the national economy, without ignoring static efficiency gains?

They conclude that:

… structural separation is, prima facie, more likely to increase innovation than intrusive regulation and recommend that a further cost benefit study of structural separation is conducted following a market review.

So, opinions differ. Although the OECD has issued a discussion paper in favour of structural separation, I get no sense that this is something the OECD will push. Neither will the FCC or the European Commission. Neither, it seems is this something that large users are clamouring for. But perhaps, if he does not become bogged down in issues to do with broadcasting, media ownership and content, Lord Currie may see it as his way of making his mark.

Colin Blackman

Note1. http://www.cookreport.com/11.05-6.shtml

ReferenceCave, M. (2002), "Is LoopCo the answer?", info, Vol. 4 No. 4, pp. 25-31.