Is functional separation a cure-all?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Functional separation of the European telecoms industry should not be seen as a “panacea” for the industry’s ills as it creates larger negative side effects than the problems it seeks to alleviate, argues IDATE Director Julien Salanave in an April news update for the ICT market analysis and consulting firm.

As it has been implemented for a range of difficulties within the industry, questions have been raised as to what it actually cures, believes Salanave. The setbacks the industry faces could be addressed using other “less radical” means, he adds. 

This stance has been backed by the Commission, which has become increasingly concerned about the rising implementation costs of functional separation, continues the author, and the “irreversible and potentially disproportionate” consequences it could lead to. 

Furthermore, functional separation can only happen in an effective way if the separated company gives its consent and it is not blocked by the regulator, claims Salanave. On the other hand, an imposed separation would be difficult to enforce and could lead to more problems within the industry as a whole, he adds. 

Salanave observes that the primary motive behind voluntary functional separation is the generation of more shareholder value, but this should only be seen as a temporary cure. Pointing to other industries where it has been attempted, such as the gas industry, Salanave claims that due to the unstable nature of functional separation it can lead to structural separation, as was the case with British Gas. 

The potential benefits of mandated functional separation are disadvantageous for the telecoms industry and thus the practice cannot be seen as a cure-all for regulatory reform, explains the author. 

Salanave concludes by saying the telecoms industry is at a crossroads due to new usage patterns, disruptive patterns and technologies and infrastructure competition. As a result of this, operators are currently fine-tuning their business models to acclimatise to new challenges, he adds. 

Subscribe to our newsletters


Want to know what's going on in the EU Capitals daily? Subscribe now to our new 9am newsletter.