The European Competitive Telecommunications Association (ECTA) which looks after the regulatory and commercial interests of new entrant telecoms operators, ISPs and suppliers of products and services to the communications industry, will call for powers enabling the functional separation of incumbents at a public hearing on the Review of the Communications Framework, to be held in Brussels today.
ECTA wants all telecoms regulators in Europe to have the power to make functional separation, an important additional measure in securing robust and effective implementation of the existing Framework and its associated proven benefits to the economy and to consumers, a reality. The pro competition body believes that it is only through having the right tools, including the ability to address incentives for anti-competitive behaviour at their heart, that the deadlock with incumbents can be broken once and for all.
“Incumbents retain more than 90% of the access lines linking customers to telephone networks across Europe(1). Yet we see in far too many cases where incumbents are holding Europe back, by dragging their heels on market-opening measures, which would allow consumers and businesses to benefit from increased competition. In fact the evidence suggests that Europe is losing as much as €13b in investment(2) because some regulators have not done or simply cannot do enough to open markets. Now is the time to make a stand, and give regulators real powers to make the Framework work. Functional separation is a vital element to success,” said Steen Clausen, Managing Director of ECTA.
Functional separation is a measure by which those parts of an incumbents’ business that are critical to providing for an open market, are placed in an organisational unit which is separate from the other commercial activities of that business. It does not replace but rather reinforce the existing pro-competitive rules in the Framework as the separation of business functions can make it much easier for regulators to enforce these rules and prevent the incumbent from discriminating against its competitors. It is particularly appropriate where full infrastructure competition is not present or likely in the medium term, and is a lighter measure than full structural separation, and easier to reverse in the event that competition develops ahead of expectations.
The functional separation model is similar to solutions already adopted in the gas and electricity sectors, where EU legislation requires the separation of energy networks and services to encourage competition. A notable example of where functional separation has been applied to telecoms is in the UK where regulator Ofcom, on the basis of a comprehensive sector review involving all players and interested parties, pioneered ‘Openreach’ as a functionally separate unit within BT. Whilst it is still early days for Openreach, the principle of functional separation has been welcomed by the UK telecoms sector and appears not to have dampened the enthusiasm of investors as demonstrated by BT’s relatively strong share performance compared with many of its European peers. Other Governments (and incumbents) have now shown an interest in these developments including Telecom New Zealand and Telecom Italia.
“Where tough measures have been taken to enable competition, we have seen the results in innovation and broadband growth. Witness the €30 triple play packages with high bandwidths available to consumers in some French cities where competition has taken off. These were not the product of a monopoly, and we can’t rely on monopolies to deliver Europe’s future broadband needs either,” said Clausen.
“But in France and elsewhere, we are having to fight every step of the way to let competitive forces through, and there is still a long way to go. An organisationally separate access division serving the needs of all its customers – not just the incumbent – could be just what we need to take Europe to the next level in broadband and boost our competitiveness.”