Functional Separation, Italian Style

Abstract:     
U.S. regulators would be ill-advised to abandon current de-regulatory policies encouraging facilities-based competition in communications markets and return to models developed for monopoly service markets. Functional separation should be viewed as an extraordinary remedy for persisting competitive problems and is inappropriate for effectively competitive markets.

There have been recent discussions in Europe over the use of functional separation of wireline access networks to cure persistent problems involving access network discrimination by vertically integrated dominant providers.

Yet the regulatory environment in markets that have implemented separation should be noted to stand in contrast with the deregulation in the U.S. communications market, where policymakers have abandoned prior structural and non-structural Computer Inquiry safeguards. Continuation of Computer Inquiry mandates developed for narrowband, single-purpose networks was found to be inappropriate and unnecessary for today's converged broadband networks. Moreover, the Federal Communications Commission concluded there was sufficient "actual and expected competition" to justify changing the regulatory regime.

With Telecom Italia's recently announced "operational separation" of its wholesale access services and retail units, the "voluntary" corporate restructuring, developed with the approval of Italy's communications regulatory body, AGCOM, is best viewed as a solution solely for the Italian communications market which is lacking a widely deployed competitive provider. The restructuring is meant to ease concerns particular to the Italian marketplace and can not necessarily be considered an ideal model for regulation in other markets.

In the U.S., reversion to a functional separation regulatory model would require a sudden and extreme policy reversal that would render the telecommunications sector wholly unattractive to investors. Instead, policy makers should focus on the dual challenges of bringing broadband deployment to areas presently unserved by any provider and preserving and expanding existing levels of competition by removing remaining disincentives to investment and making more spectrum available to wireless providers.

Number of Pages in PDF File: 18

Keywords: Telecom Italia, telecommunications, broadband, cable, operational separation,open access,wholesale access,broadband competition,Comcast,access network,broadband regulation,FCC,wireless,british telecom,spectrum,ex ante,AGCOM,wireline,antitrust,Verizon,AT&T,FIOS,U-verse,carrier incumbents,telcos

JEL Classification: D42,D43,D41,D52,F00,L11,L13,L12,L16, L42,L43,L41,L44,L40,L51,L50,L52,L63,L82,L86,L96,L98,O21,O38,O33

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